Gov. Gretchen Whitmer got most of what she wanted when the Michigan Senate sent a tax proposal to her desk Tuesday that would boost deductions for retirement income and include a credit for low-wage workers.
But Democrats, who hold a narrow two-seat majority in the Senate, couldn’t muster the votes to include the $180 rebate checks – at a cost of some $800 million — Whitmer wanted sent to Michigan residents.
Whitmer made the tax relief plan a priority in her State of the State address in January. Even without the rebate checks, Whitmer was happy to see the bill come to her desk. The plan, she said in a statement Wednesday, will roll back the retirement tax to save 500,000 households an average of $1,000 a year and quintuple the Working Families Tax Credit to put an average refund of $3,150 back into the pockets of 700,000 Michiganders.
“Michiganders need relief as inflation drives up costs and eats into their paychecks,” Whitmer said. “This is long overdue relief for Michiganders after the rug was ripped out from under them in 2011, when the retirement tax was slapped on and the Working Families Tax Credit was gutted. It was wrong. Now, we are making it right. We’ve been fighting to get this done for over a decade and I am proud to have partners in the legislature committed to delivering real relief.”
The legislation originally included $180 rebate checks, totaling about $800 million, which would have circumvent an anticipated drop in the 4.25% personal income tax. A 2015 state law, which tied the income tax to revenues, is expected to soon decrease the rate to 4.05%.
To get the rebate checks done, Senate Democrats needed a 26-vote supermajority support needed to have the bill take effect. They didn’t get it.
“It’s unfortunate those won’t be going out,” Senate Majority Leader Winnie Brinks, D-Grand Rapids, told reporters Tuesday night, according to The Detroit News. “We were hoping we would be able to get Republican support for that. But unfortunately, they were unwilling to do so.”
Senate Minority Leader Aric Nesbitt, a Republican from Porter Township, said praised Senate Republicans who he said “protected the automatic income tax rollback that is due to millions of Michigan residents who need permanently lowered taxes, not a one-time gimmick that disappears in one trip to the grocery store.”
“For weeks, the governor has maneuvered to stop this permanent tax cut from happening and Republicans have stood firm to ensure that all Michiganders finally receive this relief from historic inflation,” Nesbitt said in a statement. “Lowering personal income taxes should be just one part of a larger and more comprehensive plan to provide the people of our state with relief from inflation. I hope our colleagues across the aisle will work with us to create a child tax credit, provide immediate relief to every senior, and explore other ways to reduce the pain caused by record-high prices.”
The legislation accomplishes two of the top items on the agenda Whitmer laid out for her second term: Cutting taxes on retirement income and increasing the Earned Income Tax Credit (EITC) from 6% to 30% of the federal credit, which largely benefits lower-income workers.
The EITC boost would reduce individual income tax revenue by about $385 million per year, according to the House Fiscal Agency. Whitmer’s administration has said the change will benefit 700,000 households.
The retirement tax overhaul would alter standards put in place in 2011 by Snyder and would generally be phased in over four years. By fiscal year 2026, the changes would save taxpayers about $515 million a year, primarily by allowing retirees to deduct larger amounts of their income, according to the House Fiscal Agency, The News reported.
