$2.5B Tax Cut On Its Way, Governor Wants Negotiations
March 8, 2022
After Republican lawmakers provided their final approval on a $2.5 billion income tax cut, Gov. Gretchen Whitmer has clarified she’s armed with a veto pen and ready to negotiate.
“This bill is fiscally irresponsible, unsustainable and could increase costs for Michigan families at a time when they can least afford,” said the governor in a letter to legislative leaders. “Moreover, this bill could force the state to send American Rescue Plan dollars back to the federal government instead of investing in Michigan in our shared priorities like education, economic development and infrastructure.”
Thursday morning, the Senate sent the latest version of SB 768 to the governor’s desk with full opposition from Democrats. After alterations early in the week from the House, the legislation offered:
- A state income tax rate drop from 4.25% to 3.9%
- Permitting residents 62 years old and over to write-off $20,000 per-person ($40,000 per-couple) for taxes on retirement income. Additionally, the same group would have the initial $20,000 of non-retirement income exempt from the state income tax.
- A $500 per-child nonrefundable credit for dependents under the age of 19
Ultimately, Whitmer has signaled the bill will likely be scratched with her veto pen.
On the subject of negotiations, Democrats in the Capitol argue the legislation was generated without any.
SB 768 sponsor Aric Nesbitt (R-Lawton) said “I think you’ve seen legislative leaders be at the table the last three years and it’s unfortunate that it takes an election year for the governor to come to the table.”
“Her budget plan is unsustainable. Her spending plan is completely unsustainable,” Nesbitt said, referencing Whitmer’s historic $74.1 billion proposed Fiscal Year (FY) 2023 budget. “The massive increases in spending that she proposed is what’s unsustainable . . . so I’m looking forward to making sure that hard working taxpayers, our seniors, our job creators . . . all get to keep a little bit more of the money that they earn.”
According to Republicans, the $2.5 billion subtraction in tax revenues actually means the state is surrendering dollars it would keep within its own wallet and giving it back to the everyday individuals making the money.
When the Michigan League for Public Policy made an inquiry with the Institute on Taxation and Economic Policy in Washington, D.C. on how the tax-cuts would unfold, the nonprofit provided that residents earning less than $23,000 annually would obtain an average cut of $12.
Also, Michiganders making within $41,000 to $70,000 would walk away with $92 and those earning $539,000 or more would receive $4,901 on average with the cut.
Left-leaning organizations like the Sierra Club’s Michigan chapter, the Michigan AFL-CIO Labor Foundation, Michigan People’s Campaign, Detroit Action and others spoke out against the legislation, claiming it gave huge tax giveaways to the state’s wealthy population and placed federal aid from the American Rescue Plan Act (ARPA) at risk.
Nesbitt said fears on how the legislation would impact federal recovery dollars was false and ultimately a “strawman” argument. He explained the federal government warned the ARPA dollars could not be used on paying down pensions or tax relief – while this bill specifically takes in money from state resources.
“They’re just making up fake numbers because they know they can’t win on the arguments on the real substantive of having hard-working Michiganders keep more of what they earn,” Nesbitt said.
The bill aimed to utilize Michigan’s $7 billion General Fund surplus and to best equip residents against the rising inflation rate, which remains at a 40 year high.
However, the Legislature’s fiscal agencies forecasted it could slash Michigan’s tax revenues by $2.5 billion in Fiscal Year 2023.
A few hurs after Nesbitt’s bill received it’s final blessing, the governor submitted a letter to House Speaker Jason Wentworth, Minority House Leader Donna Lasinski, Senate Majority Leader Mike Shirkey (R-Clarklake)and Senate Minority Leader Jim Ananich (D-Flint).
In it, she expressed she was encouraged that the House and Senate agreed to put “money back in the pockets of Michigan retirees” when it expanded income tax exemptions for those 62 and older. From that, she highlighted a compromise could be reached, adding she wants to start talking about one at next week’s quadrant meeting.
“It is my sincere hope that we can now come together to negotiate a compromise that fully considers a budget alongside any tax policy decisions while putting the people of Michigan first,” Whitmer wrote.
In response to her message, Wentworth said “no excuse will change the fact Gov. Whitmer is apparently going to veto a $2.5 billion tax cut that would help every single Michigan family. People are struggling right now with the high cost of living and rising inflation. If the governor really wants to help them as quickly as possible she will sign the bill.”
The governor said she would specifically want to see the “Retirement Tax” rolled back with 500,000 households saving an average of $1,000 annually. However, Republicans are especially concerned that the governor’s retirement endeavors won’t assist non-pension incomes like 401Ks.
“She wants special exemptions for those that happen to be fortunate enough to have pensions, but not for my mom who’s 73 and living off of Social Security and some earned income,” Nesbitt said. “I think it’s something where when you provide tax reliefs, it’s best to provide tax relief to all working families and all seniors…instead of picking winners and losers like what she was trying to do.”
Senate Tries Again To Reduce Corporate Tax
The earlier version of SB 768 featured a plummet in the corporate tax rate from 6% to 3.9%, which was heavily disliked by Democrats and detached from the bill in the House. However, Senate Republicans revived the effort by voting out SB 392 from April of last year.
By ropping the corporate tax rate to 3.9%, SB 392 could reduce $490 million from the General Fund in FY 2024, subtracting 35% from what would be collected under Michigan’s present-day Income Tax Act.
However, Republicans underscored the bill could attract new business ventures in the state, as well as offering relief to small businesses that were severely handicapped by COVID-19 mandates.
“My bill is designed to help main street businesses throughout Michigan recover from the effects of the governor’s shutdowns while attracting new businesses and growing lucrative jobs,” said sponsor Sen. Jon Bumstead (R-Newaygo). “We can’t afford to see Michigan lose good jobs and good people to neighboring states with a lower tax rate.”
According to the Senate Fiscal Agency’s recent revenue report, the state of Michigan sent out to businesses $207.6 million more in refundable tax credits in January than it received in business taxes in January. The Corporate Income Tax brought in $145.1 million, which was more than wiped out by the $352.1 million tax credits that went out the door to some businesses under the Michigan Business Tax.