Michiganders could see collective tax bills decline by as much as $1.6 billion in coming years because of an old law and newer plans that Gov. Gretchen Whitmer touted last week in her State of the State address.
That’s according to House Appropriations Chair Angela Witwer of Delta Township, who said that new Democratic majorities in the Michigan Legislature have no plans to block an income tax cut that could be triggered by growing state revenues.
“We haven’t talked about political suicide,” Witwer told reporters, acknowledging lawmakers could face public criticism if they tried to stop the potential income tax cut, which Republicans built into a 2015 road funding law that increased fuel taxes and registration fees.
With state government sitting on a roughly $9 billion surplus, and inflation pinching pocketbooks, the trigger law could reduce the state’s income tax rate from 4.25 percent to as low as 4.05 percent, according to recent estimates from nonpartisan House and Senate fiscal agencies.
Democrats are waiting for final 2022 revenue numbers to confirm whether state law will require the income tax rate reduction — which they could receive by next week — but they anticipate the potential cut could cost about $800 million, Witwer said.
Majority leaders also want to provide another $800 million in relief by expanding the Earned Income Tax Credit for lower-income residents and repealing the so-called pension tax on various forms of retirement income, she said.
Those plans would reverse changes made by the GOP in 2011. Combined, the Democratic plans would benefit some 1.2 million Michigan families: Seven hundred thousand would save another $350 to $600 per year, depending on how much much the Earned Income Tax is expanded, while 500,000 retires would save about $1,000 per year in retirees.
“These are meaningful ways we can put real money back in people’s pockets — people who are living on fixed incomes, people who are working but can’t get ahead,” Whitmer told reporters last week after a roundtable in Lansing. “That’s what we’re focused on.”
The Senate Housing and Human Services Committee last week approved legislation that would expand the Earned Income Tax Credit to 30 percent of the federal level this year, which would cut taxes by a collective $442 million.
That’s more than the 20 percent federal level that House Democrats proposed, but legislative leaders and the governor are still discussing a final plan.
“We could go as high as 30 (percent),” Witwer said. “We’re not yet sure where that will land, but you’ll see some changes” to legislation introduced earlier in the month.
Michigan Democrats have long pushed to repeal the so-called pension tax enacted under former Gov. Rick Snyder, and a Senate panel is debating a bill that would restore old exemptions over the next four years.
Republicans have criticized the legislation as too narrowly focused on union retirees, but Democrats are discussing ways to expand their proposals to exempt more forms of retirement income from taxation “so that we’re not picking winners and losers,” Witwer said.
Democrats seek bipartisan support for their targeted tax relief proposals, which they intend to make among the first bills they send to Whitmer since winning two-seat majorities in the House and Senate last fall.
Republicans, meanwhile, are pushing for broader tax cuts and urging Democrats to let the potential income tax trigger take effect. “A lot of hardworking families could use $500 today instead of five years from now,” Senate Minority Leader Aric Nesbitt, R-Lawton, said last month.
Democrats may not have a choice on the income tax cut, Witwer told reporters.
“We can’t really repeal it,” she said of the 2015 trigger law, which requires the state to cut the rate if general fund growth exceeds 1.425 times the rate of inflation. “It’s one of those things that will happen if the money is there. So, we’ll just have to see where the books land.”
The Earned Income Tax Credit expansion is backed by a broad and bipartisan coalition of more than 230 groups, including the Michigan Chamber of Commerce and Small Business Association of Michigan.
But two of three Republicans on the Senate Housing and Human Services panel voted against the legislation last week, including Sen. Jonathan Lindsey, who told Bridge he was concerned by the speed of the process and had unanswered questions about the impact on other taxpayers.
“We need to be taking up legislation that helps keep more money in the pockets of all Michiganders,” said Lindsey, R-Allen. “I don’t think what we’re seeing from this process so far is actually really diving into the best way to do that.”
Whitmer last year vetoed larger GOP tax cut plans but began a heavy push for more narrowly focused relief.
Ahead of her State of the State address, the governor met with local supporters who complained about the impact of inflation and other costs on their household budgets, including a young mother who said she earned $13 an hour and broke down in tears while telling the governor that she struggled to afford food, gas and daycare.
Whitmer has not weighed in on the potential income tax cut trigger that Republicans added to the 2015 road funding law, and she said last week that Democrats are continuing to have internal discussions over possible changes to their own tax relief legislation.
“My foremost goal is to undo the new tax on retirement that was created 12 years ago,” Whitmer said, referencing her years-long call to repeal the pension tax.
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