Michigan lawmakers advanced a proposal for slashing taxes Tuesday, approving a $2.5 billion plan to cut the state income tax rate to 3.9%, expand tax breaks for seniors and put funding toward paying down pension debt.
The Republican-led legislation would bring the state income tax from 4.25% to 3.9%, offer a $20,000-per-person income tax exemption for seniors 62 and older and drop $1.5 billion in one-time funding into paying down pension debt for local governments, road commissions and the Michigan State Police. The plan would also create new tax credits for qualified dependents.
House members voted 71-33 to advance HB 5054 to the Senate. They also voted 62-42 to pass SB 768. Both bills earned some support from a handful of Democrats, including Reps. Jewell Jones, D-Inkster, Karen Whitsett, D-Detroit and Shri Thenadar, D-Detroit.
The House bill, sponsored by Rep. Thomas Albert, R-Lowell, would allocate $1.5 billion in one-time funding from the state’s general fund surplus to reduce debt and improve the finances of public employee retirement systems.
Republican supporters called the proposal a way to offer meaningful tax relief to all Michigan residents, while some House Democrats questioned the long-term feasibility of the plans and whether reducing the income tax was the best way to provide targeted tax relief.
“This proposal is a no brainer,” said Thomas Albert. “If their pensions run out of money, the income tax relief we’re providing seniors won’t do them any good... Making this investment now will help deliver promised retirement benefits and essential public services in the future – without saddling our children and grandchildren with more debt.”
House Democratic Leader Donna Lasinski, D-Scio Township, argued that the Republican proposal would put an unnecessary strain on the state’s revenue and would risk losing American Rescue Plan funding.
The federal government requires a state’s tax revenue to exceed the amount it took in in 2019, prior to the pandemic’s effects on the economy and government coffers. If that condition isn’t met, the state would need to cut its spending or return American Rescue Plan funds.
“This Republican tax shift is the most fiscally irresponsible action we’ve ever seen before in our chamber. Losing $6 billion in revenue in revenue is an astonishing hole in our government, and this wound to our state, our public services, our financial health will pain the people of Michigan for decades,” Lasinski said.
House Bill 5054, sponsored by Albert, provides $1.5 billion in one-time funding from the state’s general fund surplus to reduce debt and improve the finances of public employee retirement systems. Most of the funding would go to pension plans for local governments and road commissions, with an additional $350 million to improve financing in the Michigan State Police retirement system.
The plan is the latest in a string of tax cut proposals circulated by Michigan officials in light of record-high revenues in recent years.
“This is the only plan that gives relief to all Michigan families, workers and seniors,” Hall said. “If we cant do it now, when we have millions of dollars of surplus, we’re never going to do it.”
The Michigan Senate recently approved a plan to reduce both the individual income tax rate and the corporate income tax rate to 3.9%. Gov. Gretchen Whitmer has proposed repealing Michigan’s so-called “pension tax” and increasing a tax credit for low-income working people from 6% to 20%.
The state’s corporate tax rate cut would stay the same under the bills passed Tuesday, a change from the Senate-passed version that would have cut it to 3.9%. Tax plans from the Legislature and the governor’s office represent a statement of priorities as budget talks get underway.
“We know that it’s easy to sell a tax cut,” said Rep. Yousef Rabhi during an impassioned floor speech Tuesday. “Things can turn on a dime and they have before, we know it,” Rabhi said. “We are making a structural change that will gut our state government for years, decades to come.”
Rabhi called the measure “pure and utter fiscal irresponsibility.”
Related coverage:
Michigan Senate approves massive tax cut, corporations to see biggest benefit
Michigan House Republicans propose income tax cut, more exemptions for seniors
$2B tax cut proposal advances from Michigan Senate panel
5 ways Michigan politicians are considering lowering your taxes
Didn’t read Whitmer’s budget plan? Here are 7 things you should know.