Gov. Gretchen Whitmer set the stage Wednesday night for an election-year debate in Lansing over potential state tax cuts.
As Republicans in the Senate pushed ahead with proposals to reduce individual and corporate income tax rates, Whitmer used her annual State of the State address tonight to propose cutting the tax on retirement income and increasing the state’s earned income tax credit.
“As always, I’ll work with anyone on these kitchen-table issues,” Whitmer said. “I believe that whenever possible we should make taxes more fair for our seniors and working families. Michiganders should be able to keep more of what they’ve earned.”
Whitmer proposed repealing the state’s “retirement tax” on income from pensions, 401(k)s and individual retirement accounts. Phasing out the tax over a period of years would save an estimated 500,000 households in the state $1,000 a year, she said.
Repealing the tax “will help real people,” said Whitmer, adding that she is “ready to work across the aisle to roll back the retirement tax.”
“For our seniors, let’s work together to repeal the retirement tax. I first called to repeal this tax back in 2019. It’s time to get it done,” she said. “Repealing the retirement tax will help Michiganders who worked hard and played by the rules. It’s the right thing to do.”
A proposed increase in the earned income tax credit to 20 percent of the federal tax credit from the present 6 percent would create an average $3,000 tax refund for 730,000 people in Michigan, she said.
The Grand Rapids Area Chamber of Commerce also supports increasing the earned income tax credit.
Doing so “aligns with our goal of creating a thriving and prosperous West Michigan for all,” Grand Rapids Chamber President and CEO Rick Baker said in a statement following Whitmer’s speech.
“The Chamber will continue to work with the governor and legislators to create an environment that supports business success and an equitable, growth-oriented future. In particular, we hope to see more support for small businesses in the face of rising costs and a severe talent shortage,” Baker said.
Earlier in the day, Republicans on the Senate Finance Committee proceeded with their own tax cut proposal. The committee on a 5-2 party-line vote sent to the full Senate a bill to reduce individual and corporate tax rates and provide a $500 tax credit for dependents under 19 years old.
Under Senate Bill 768, the state’s individual tax rate would drop from the present 4.2 percent to 3.9 percent. The state’s corporate income tax would fall from 6 percent to 3.9 percent.
“Inflation’s making life more difficult for families and the state of Michigan is experiencing very large surpluses, so we need to step up and help hard-working taxpayers, small business owners and our seniors and our working families,” bill sponsor Sen. Aric Nesbitt, R-Lawton, said during testimony to the Senate Finance Committee. “We need to use this opportunity to provide significant, real, across-the-board tax relief for Michigan’s hard-working families and job creators.”
Reducing the tax burden is a “crucial component to help families and to improve our economy,” Nesbitt said.
State tax cut proposals come as Michigan has $16 billion in budget surpluses and federal pandemic relief funds to spend.
S.B. 768 would cut state revenues by roughly $2.34 billion in the state’s 2022-23 fiscal year that starts Oct. 1, and by roughly $2.39 billion in FY 2023-24, according to an analysis by the Senate Fiscal Agency, which noted the “revenue loss would increase in later years as the economy continues to grow.”
The bill gained the support of business groups in Lansing.
Reducing the corporate income tax would allow companies organized as C-corporations “to rebuild and further invest in the future of their business, their employees, and their communities,” Leah Robinson, director of tax policy for the Michigan Chamber of Commerce, wrote in testimony submitted to the Senate Finance Committee.
“With the unexpected influx of state funds created by the COVID-19 pandemic, subsequent federal appropriations, and state revenue collections higher than previously projected, the Michigan Legislature has a unique opportunity to provide relief to Michigan taxpayers, thereby reinvigorating our economy and steering Michigan towards a more competitive business climate,” Robinson wrote.
Other groups backing the legislation include the Grand Rapids Area Chamber of Commerce, Small Business Association of Michigan, Michigan Retailers Association, the Michigan chapter of the National Federation of Independent Businesses, and the Associated Builders and Contractors Michigan.
The Michigan League for Public Policy and the Michigan Department of Treasury oppose the bill.
Sen. Jim Runestad, chairman of the Senate Finance Committee, said in a statement that the state’s income tax was increased in 2007 to 4.35 percent from 3.9 percent, and “a promise was made to roll it back to 3.9 percent by 2015, which never happened.
“Now is the time to keep the promise as the people of Michigan have weathered economic and supply chain disasters that have followed the poor unilateral policy decisions, and historic levels of inflation — all while the state is exceeding revenue projections,” said Runestad, R-White Lake. “It’s past time for the governor and legislative leaders to come together and provide real and meaningful relief to the hardworking taxpayers of this state. Families and businesses can spend their dollars far better and wiser than the government can.”