Child Tax Credit Passes Senate; Expanded Biz Tax Deduction Passes House
May 18, 2021
Taxpayers would be allowed to claim a tax credit of up to $500 per every dependent child 18 and younger for Fiscal Years (FY) 2022 to 2025 under a bill that passed the Senate, 25-10.
SB 0378, from Sen. Jim Runestad (R-White Lake), was argued to have come in the face of Michigan having its lowest birth rate since 1941.
Nationally, the birth rate plummeted by 4% in 2020 in comparison to 2019, representing the sixth consecutive year that the number of births has dropped since experiencing an increase in 2014.
“This is saying for people who want to go out, work, need money for their daycare — we’re going to incentivize that,” Runestad said during the bill’s April 28 hearing and vote in the Senate Finance Committee. “And we incentivize that we continue to have children — that’s our future. If we’re having an imploding population because people can’t afford to have kids, it’s going to have a tremendous negative impact.”
On the Senate floor, Runestad said Michigan experienced the lowest birth rate since 1941, quoting state numbers.
According to the National Center for Health Statistics and relayed by NPR, the nationwide birth rate was “down an average of 2% per year, and the lowest number of births since 1979.”
Michigan did grow by 2% in the past decade — the population blooming from 9,883,640 in 2010 to 10,077,331 last year — but that was scant when compared to the growth rate of other states.
A $600 tax deduction for dependent children under 19 years-old was previously available in Michigan until 2012. In its final year of 2011, deductions were claimed for 2.3 million children of the ages 18 and under.
“The tax rate for tax year 2011 was 4.35%, implying the provision would have reduced revenue by $50.4 million under the current 4.25% tax rate,” the bill’s fiscal analysis reads. “Tax credits reduce revenue substantially more than an income deduction of the same amount.”
The bill is projected to reduce approximately $725 million of individual income tax revenue from the General Fund and School Aid Fund annually from FY 2022 to FY 2025.
“While we should be in the business of making true, meaningful reform and providing actual help to families with dependent children — this isn’t it,” said Sen. Erika Geiss (D-Taylor). “The child tax credit does not and will not offset the perpetuating disinvestment in their schools. It’s a fundamentally backwards tradeoff.”
She said the devil is in the details, saying it appears to be a gift at first and it makes it seem “almost as if families and the care and nurturing of dependent children only lasts for four years.”
“Which is laughable because it’s 18 at minimum,” Geiss said, describing it as a “sort of kind of feel good legislative financial tradeoff.”
House Shares Large Company Tax Break With Small Businesses
The House voted 88-18 Thursday to hand federal tax breaks to small businesses, a tax break larger companies already get.
“HB 4288 would treat flow-through entities — that’s S corporations, partnerships and LLCs — the same as larger C corporations relative to paying and deducting state and local taxes,” sponsor Rep. Mark Tisdel (R-Rochester Hills) explained to the House. “This bill does not decrease the amount of taxes paid to our state, it simply restores a legitimate tax deduction to a class of small business owners that is currently only available to larger C corporations. This change will help Michigan businesses, an estimated 170,000 of them.”
Rep. Jack O’Malley (R-Lake Ann) also spoke in favor of the bill.
“We’ve seen people’s livelihoods taken apart by the pandemic and the orders issued in response. People in our districts have worked decades to raise up their small business and it is truly their life’s work. They’ve been scared about what the future holds for them. They’ve wondered if their life’s dream is going to make it through all of this, and sadly some have not.”
Tisdel explained in the Tax Policy Committee that the federal government in 2017 put a $10,000 limit on deductions for these small companies for state and local taxes. He estimated that hurt 245,000 businesses while large corporations continued to get the break.
“Our Michigan businesses are going to be able to save money. It is not going to affect our state revenues whatsoever and it is happening in other states, as well,” Rep. Steven Johnson (R-Wayland) said in committee. “. . . So what would be the opposition to something like this? Seems like a great bill in my mind.”
Tisdel said 15 other states already allow the deductions.
But the Treasury Department did oppose the bill. Aaron Keel, spokesman for Treasury, said the bill is very complicated so it would require $10 million in one-time funding to set up the administration and another $2 million per year on an ongoing basis.
Keel said there was discussion among committee members about making the bill retroactive to 2018, and that would mean a million businesses could file amended returns. He said that would be like an entire tax year of filings all at one time.
The bill as passed will be retroactive to Jan. 1, 2021.
Voting no Thursday were Reps. Abraham Aiyash (D-Hamtramck), Felicia Brabec (D-Pittsfield Twp.), Julie Brixie (D-Meridian Township), Darrin Camilleri (D-Trenton), Cara Clemente (D-Lincoln Park), Jim Ellison (D-Royal Oak), Rachel Hood (D-Grand Rapids), Cynthia A. Johnson (D-Detroit), Amos O’Neil (D-Saginaw), Yousef Rabhi (D-Ann Arbor), Julie Rogers (D-Kalamazoo), Helena Scott (D-Detroit), William Sowerby (D-Clinton Twp.), Samantha Steckloff (D-Farmington Hills), Lori Stone (D-Warren), Regina Weiss (D-Oak Park), Tenisha Yancey (D-Grosse Pointe) and Stephanie Young (D-Detroit).
Rep. David LaGrand (D-Grand Rapids) abstained saying he owns multiple LLCs.
Rep. Steve Marino (R-Harrison Twp.), Rep. Cynthia Neeley (D-Flint), and Rep. Andrea Schroeder (R-Independence Twp.) were absent.