Published in Economic Development
Gov. Gretchen Whitmer signing the state’s current budget in 2021. Gov. Gretchen Whitmer signing the state’s current budget in 2021. COURTESY PHOTO

Statewide tax cuts still on the table as Whitmer, lawmakers negotiate

BY Thursday, July 14, 2022 06:47pm

Statewide tax cuts remain on the table for later this year despite a recent budget deal between Gov. Gretchen Whitmer and lawmakers for the state’s coming fiscal year that keeps present tax rates.

Whitmer’s administration and lawmakers dropped tax cuts from negotiations as they neared a self-imposed July 1 deadline for a final budget agreement. As the state’s balance sheet carries $7 billion in surpluses and one-time federal pandemic relief funds, the two sides are now expected to return to discussions about both tax cuts and more supplemental spending.

“I am cautiously optimistic that, at some point, some sort of tax cut will happen,” said Amanda Fisher, director of the Michigan office of the National Federation of Independent Businesses. “They left a lot of money still on the table.”

This spring, Republican legislators who control the House and Senate passed tax-cut plans that Whitmer promptly vetoed. Whitmer has been pushing more modest, targeted tax cuts.

The $2.6 billion plan that the GOP passed in May would have reduced the state’s personal income tax rate from the present 4.25 percent to 4 percent and increased individual tax exemptions. The Republican plan also would have raised the state’s earned income tax credit from 6 percent to 20 percent of the federal credit, a change that Whitmer has supported.

In a competing proposal, Whitmer seeks to triple the earned income tax credit, pause the state’s gas tax, reduce taxes on public pensions, and provide $500 in inflation tax-relief checks. Speaking this week in Grand Rapids, Whitmer said she hopes to extend the bipartisanship with legislators on the budget to tax cuts. She said she would “love to get it done by Labor Day, but I’m not going to put a phony timeline on it.”

“There’s a lot of negotiation ahead, but we have signaled that we’re all interested in giving people some inflationary relief right now. My goal is to make it so it can translate quickly. I’m not interested in something that’s going to happen next year. People need help now and we’ve got the resources to do it,” Whitmer said. “We are in a position where we could provide some relief. I’m eager to do it. I’ve proposed a number of ways to do it. The Legislature has some ideas about how to do it. We just need to get to the table and try to hash those out.”

“My door is open,” Whitmer added. “I’m eager to get to the table and get that started.”

‘Delicate balance’

Whether tax cuts actually get done this year depends on how much Whitmer and Republican lawmakers are willing to compromise from their set positions, said Wendy Block, vice president for advocacy and member engagement at the Michigan Chamber of Commerce.

Block believes chances are still good for some form of a tax-cut plan later this year. The $7 billion on the state’s balance sheet “leaves a lot of room leftover for discussion about tax cuts, and I think that is primarily the intention,” Block said.

“The next step seems to be working to find consensus on allocating these dollars and what source of tax cuts can be funded. Certainly there are competing proposals. The governor has hers and the Legislature has theirs, and they’re going to have to work to come to the middle on these things, and not everything can be funded,” she said. “You can see how this is going to be a delicate balance and a delicate dance moving forward. Everyone has to walk away feeling like they won something, but any tax cut comes with a fairly significant price tag attached.”

The Small Business Association of Michigan favors reducing the personal income tax that many small business owners pay on the income from their business rather than the state’s corporate income tax. SBAM also supports an increase of the earned income tax credit.

“We are hopeful that a real tax cut can still happen, though the veto of the modest decrease in the individual income tax rate was discouraging,” CEO Brian Calley wrote in an email to MiBiz.

“I am hopeful, though it is difficult to see a pathway to a permanent tax cut given the governor’s reaction to a modest reduction in the income tax rate,” Calley said. “Leaving $7 billion unspent means that there is an agreement to try to do something, though I’ve not seen any evidence that the governor is willing to entertain a permanent tax cut yet.”

The NFIB also supports reducing the personal income tax and corporate income tax, Fox said.

As well, several business organizations back raising the earned income credit.

The Michigan Chamber believes raising the earned income tax credit for low-income workers would provide an incentive for people who left the labor force during the pandemic to return, Block said.

“We obviously need a bump in the labor force participation rate here in Michigan,” she said, noting that the rate remains below pre-pandemic levels. “There are too many people that remain on the sidelines and this seems to be one of just a few meaningful solutions to incentivize work out there.”

Business groups also would like to see a repeal of the state’s personal property tax on commercial property that they see as complicated and burdensome.

However, complicating any potential elimination of the personal property tax is replacing lost revenue for local municipalities. Block doesn’t see lawmakers addressing the PPT until next year with the start of a new legislative session.

“The realist in me says the personal property tax might be the easiest of those,” Fox said. “From a business perspective, that might make the most sense and get you the most bang for your buck because that will encompass a lot of those smaller businesses, and some of the biggest businesses, too.”

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