The Republican-led Senate and House passed out $2.5 billion in tax reductions, including an expansion of Michigan’s Earned Income Tax Credit from 6% to 20% in the 2022 tax year and increasing personal tax exemptions by $1,800.
The bill came the same day Gov. Gretchen Whitmer proposed using the state’s growing state surplus to give Michigan households a $500 rebate check, an idea Democratic legislators quickly gravitated around.
Both plans came about an hour after Whitmer met with legislative leaders in a quadrant meeting, where lawmakers told the Governor that the tax cut scheme was on the way. It also came a day before state revenue forecasters nailed down projections as to how much money they believe will come in the door for the rest of this fiscal year and the next. It will be multiple billions.
Expect the Governor and legislative leaders to soon begin talking about a compromise budget that can be passed before the summer recess.
As for the tax cut, the Senate substituted House Tax Policy Chair Matt Hall’s (R-Comstock Township) HB 4568, which was discharged from the Senate Finance Committee without a hearing. The final product would reduce the income tax rate from 4.25% to 4% in the 2023 tax year, among other features.
“I’m getting sick and tired of this administration not acknowledging their efforts and their role in what has been created for the citizens of this state, and quite frankly, the rest of this nation,” said Senate Majority Leader Mike Shirkey (R-Clarklake) in a fiery floor statement. “Who’s to say that we’re done? We are only beginning. But I’m damn proud with what this body is about to pass.”
Shirkey accused the Democrats of playing “funny games” by using Thursday’s votes to advocate for more immediate relief via $500 checks sent directly to Michiganders’ pockets. After his statement, the Senate’s Republican caucus waved up their fingers, requesting to share in Shrikey’s “yes” vote explanation.
HB 4568 passed on a party-line vote in the Senate. However, in the House it obtained approval from Democratic Reps. Darrin Camilleri (D-Brownstown Twp.), Kevin Coleman (D-Westland), Alex Garza (D-Taylor), Carol Glanville (D-Walker), Jim Haadsma (D-Battle Creek), Kevin Hertel (D-St. Clair Shores), Jewell Jones (D-Inkster), Matt Koleszar (D-Plymouth Township), Padma Kuppa (D-Troy), David LaGrand (D-Grand Rapids), Terry Sabo (D-Muskegon), Shri Thanedar (D-Detroit), Karen Whitsett (D-Detroit) and Angela Witwer (D-Delta Township).
Before the House voted on the bill 69-34, House Minority Leader Donna Lasinski (D-Scio Twp.)explained that the assistance associated with the bill would not come until 12 to 15 months from now if it were enacted. She said the Legislature does not know what the costs for beef, bread, milk and other grocery items will be like in the future, but does “know Michiganders need relief at the grocery counter right now.”
Hall on the other hand, told the media the bill is the product of looking at why the Governor vetoed Republican lawmakers’ $2.5 billion income tax cut from March and added the items she was looking for, like an EITC enlargement.
“What we’re talking about is something that will give people real relief and it’s permanent,” Hall said. “It’s much larger for many of our families and workers and it solves problems we’ve been hearing about for years, such as the problem with our veterans who really need more help right now.”
He said the Governor should sign the legislation, because it offers a permanent tax cut to Michiganders and “if she’s serious about inflation and the rising cost of living, this is a great plan for her to sign.”
When the Senate pumped out the legislation – along with SB 784 by Sen. Jon Bumstead (R-Newaygo) to address advanced relief options for U.S. military veterans and their widows – the Senate Fiscal Agency (SFA) estimated the plan would absorb more than $2.44 billion from the General Fund by the Fiscal Year (FY) of 2025, and $244.5 million from the School Aid Fund.
Other items include:
– Beginning at the start of 2023, an individual – after reaching 67 years-old – could have an unrestricted deduction of $21,800 as a single filer and $43,600 for a joint return. At the start of the 2024 tax year, the deduction would need to be adjusted for inflation.
– For tax years beginning on and after Jan. 1 of this year, a taxpayer could claim a $500 nonrefundable tax credit for dependents younger than 19 years old.
– At the beginning of the 2023 tax year, a disabled veteran, their widow or widower or the widow or widower of a veteran killed in action could claim a credit against their income tax in an amount equal to 100% of the property tax levied on their homestead deductible for federal income tax purposes.
Bumstead’s SB 784 was opposed by Sen. Jim Stamas (R-Midland)and was not voted on later Thursday afternoon in the House because the rules submitted it to a layover.
Although Republican legislative leaders doubled down on tax cuts, Whitmer and Senate Minority Leader Jim Ananich (D-Flint)called for direct $500 relief checks to families.
Term-limited Sen. Curtis Hertel (D-East Lansing)offered an amendment providing a $500 relief check to families and $100 per child, leaving it up to the Michigan Department of Treasury to determine the specifics of how the assistance would be disseminated.
As for a general tax cut, Hertel said such a scheme benefits richer people far more than working class folks. He said under the Republican plan, the average Michigan family making $75,000 and $100,000 a year would get less than $300 a year in benefit from the income tax. A millionaire would get $18,000, a multi-millionaire, $175,000 per year and a billionaire $3.5 million a year.
“Under your income tax cut, a billionaire gets a yacht, a millionaire gets a new boat, and a family gets a dinghy,” Hertel said.
Hertel told the media that the Democratic caucus heard rumors during Wednesday that Thursday’s floor votes were a possibility. However, he said they didn’t see the modified legislation until five minutes before it was catapulted to the voting board at Thursday’s Senate session.
According to a letter from the Governor, the $500 relief checks build on her goals of shielding income collected in retirement from the state taxes – an average of $1,000 in savings to them. She also wants to triple Michigan’s available Earned Income Tax Credit as an effort to give 730,000 working families a combined $3,000 refund.
Asked if the $500 was per household or per individual, Whitmer’s office said that would be decided later through negotiations with a “bipartisan group of lawmakers.”
Meanwhile, Hertel’s amendment would make the checks available to families earning less than $250,000 annually.
The dueling tax-related announcements came the day before Friday morning’s Consensus Revenue Estimating Conference, where the state’s joint revenue estimates will be finalized.
As of now, the SFA is projecting the state will finish the fiscal year ending Sept. 30 with $5.3 billion in the General Fund and $4.8 billion in the School Aid Fund (SAF).
It’s also forecasting a $4 billion General Fund budget for FY 2023 and a $4.2 billion budget balance for the FY 2023 SAF.
Ultimately, the divide between “tax cut” versus “relief checks” is that Democrats are concerned that Republicans’ plan doesn’t offer financial solace fast enough, with benefits not coming until residents file taxes next year.
“The good news is that Michigan is expected to have additional revenue heading into FY 2023. Our forthcoming budget season has the potential to be one of the most productive we have ever had,” Whitmer said.
Whitmer’s rebate announcement came after Thursday’s quadrant meeting with the Governor and legislative leaders, where the pending tax cut vote was shared.
When asked if the Governor showed any signs or indications she would immediately veto something like the tax cut, Shirkey said “she didn’t show any signs.”
Around 10 a.m., as reporters began asking if Thursday’s $2.5 billion tax-axing was a product of negotiations, Whitmer submitted a letter to the same lawmakers she had just met proposing a “MI Tax Rebate Right Now” program.
“We talked about all of these things and many, many more. We were talking about some really important stuff – there’s heavy and material conversations taking place,” Shirkey said, adding that Whitmer submitted her letter “at the end of her meeting, just before her ‘don’t worry, don’t forget me, let me get into the game’ press release.” Shirkey said Whitmer has been complicit in inflation because she shut down industries, businesses and lifestyles during the heat of the COVID-19 pandemic, “which has caused the reaction from the federal government to have to do something that is almost unprecedented – and that is to send out trillions of dollars ostensibly to help – but it is what has caused the inflation.”