A Republican proposal, Senate Bill 768, would lower state income tax rates to 3.9 percent from 4.25 percent for individuals and 6 percent for corporations. The plan also provides a tax credit of $ 500 for a child under 19 years of age.


Republican lawmakers have argued that the plan will bring tax breaks to all Michigan families as the state continues to recover from the economic impact of the COVID-19 pandemic.

All Democrats in the Senate opposed the move, arguing it would further shift the tax burden from corporations to ordinary taxpayers. The income tax savings for an individual earning $ 70,000 will be $ 228 per year when the plan passes.

Tax cuts are raging in Lansing as officials discuss how to spend $ 7 billion in government revenue surplus and another $ 7 billion in federal stimulus funds. Democratic Gov. Whitmer has proposed a smaller and more targeted tax cut as part of a huge $ 74.1 billion budget proposal that Republicans have criticized.

The Senate proposal could face hiccups in the House of Representatives, which is also controlled by Republicans.

“The House of Representatives is preparing its own proposal,” said Gideon D’Asandra, spokesman for House Speaker Jason Ventworth, R-Farwell. “Speaker Wentworth would like to focus more on helping families and the elderly who are struggling with incredibly high inflation and the cost of living.”

House Speaker Thomas Albert, R. Lowell, said he did not want to use federal incentives to pay for any cuts because “it is not explicitly allowed” under a law passed by Congress last year.

Albert estimates the state could cut annual taxes by about $ 800 million and not violate federal regulations, he said last week on WKAR-TV’s “Off the Record.”

But, according to Albert, the House of Representatives will continue to consider cuts, including a rollback of the income tax rate, an extension of individual tax deductions, property tax benefits and commercial property tax benefits.

“There are really a lot of options on the table,” he said.

Whitmer, a Democrat who is set to run for re-election in November, may veto Republican plans and propose his own cuts.

It wants to phase out what is known as a “pension tax,” a multi-tiered system that applies an income tax of 4.25 percent to pensions depending on when the taxpayer was born — and undo the 2011 reduction in the income tax credit for low-income workers.

“These are hard-working people who pulled out the rug when the previous administration raised taxes on Michigan,” Whitmer spokesman Bobby Lady said Tuesday. “We can start by fixing everything again by abolishing the pension tax, giving older people leave, and lowering taxes for working families.”

The Senate plan explained

In addition to lowering the income tax, the Senate’s proposal was amended Tuesday to include tax breaks for senior citizens aged 67 and older. This will reduce taxable income by $ 30,000 for seniors and $ 60,000 for seniors.

Tax cuts will reduce Michigan’s revenue by $ 1.8 billion in fiscal year 2022, by $ 2.5 billion in fiscal year 2023 and by $ 2.6 billion in fiscal year 2024. fiscal analysis of the legislature. It is estimated that revenue losses will increase in the coming years.

Michigan reportedly collected $ 31.4 billion in taxes and fees in the 2020 fiscal year. full financial report of the state. Of these, about $ 10 billion is personal income tax and $ 1 billion is corporate income tax. government records show.

Republicans say tax cuts will boost the economy and absorb lost revenue.

“The state budget has grown by $ 30 billion over the past 10 years,” said protégé speaker Arik Nesbitt, R-Lawton, who is sponsoring the tax cuts.

“When you lower taxes … you develop the economy, you add more people. We need to grow again. We can’t just keep slicing the same size cake. We need to grow this pie in Michigan. ”

He demonstrated Bridge Michigan estimates that in fiscal 2023, the state will collect $ 1.1 billion less in personal income tax and $ 465.5 million less in corporate income tax.

The analysis shows that the state will pay about $ 750 million to $ 800 million in child tax credits and lose another $ 100 million a year in pension taxes.

“Eighty percent of the benefits go to families and small businesses operating here in Michigan, and retirees,” Nesbitt said. “It’s about competition and victory over other nations around us.”

Democrats in the Senate argued that the plan largely benefits large corporations.

“Small businesses that really fought during the pandemic will get virtually nothing from this offer,” said Senate minority leader Jim Ananich, D-Flint. “Meanwhile, this bill allows the richest, most profitable corporations, in other words, the company’s big donors, to get six times as much leave.”

Ananich unsuccessfully sponsored the amendment, which once and for all abolishes corporate income tax and abolishes the pension tax.

Sen. Jeremy Moss, of D-Southfield, said in the hall that the Republican-backed plan would put a heavier financial burden on ordinary taxpayers rather than corporations.

“Legislative Republicans who have spent a decade mourning, condemning, attacking the pension tax they created themselves are creating the same framework for further shifting our tax burden from corporations to Michigan residents,” Moss said.

Government records show that the tax burden has shifted to individuals since 2011, when former Gov. Rick Snyder set a fixed corporate tax rate of 6 percent.

In fiscal year 2020, Michigan collected about $ 541 million in business taxes compared to $ 1.4 billion in 2011. Personal income tax revenue rose from $ 6.4 billion to $ 10.5 billion over the same period.

Whitmer’s proposal

Last week, Whitmer said she was ready to negotiate tax policy with Republicans, but said she was focused on “making our tax code fairer.”

The governor proposed doing so by repealing a couple of tax changes made in 2011 under Snyder and a Republican-led legislature.

The Democrat of the first term wants to abolish the “pension tax”, which expanded the taxation of pension income. She also wants to repeal the reduction in the income tax credit for low-income workers.

The phasing out of the so-called pension tax over the next four years, as proposed by Whitmer, will cost the state $ 13 million in the current tax year and $ 495 million annually until 2025, according to the Whitmer administration.

The State Budget Office estimates that nearly 500,000 households will save an average of $ 1,000 if the state restores retirement tax benefits.

Restoring the state tax credit to 20 percent from the federal level compared to the current 6 percent will benefit approximately 750,000 families, but will cost the state $ 262 million in revenue.

Extending the income tax credit for low-income workers to benefit approximately 750,000 families, as Whitmer suggested, will cost about $ 262 million in fiscal year 2023 and beyond.

Michigan is full of federal incentives, but the money comes with conditions.

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