5 ways Michigan politicians are considering lowering your taxes

Editor’s Note: This article originally appeared in MLive.

By Lauren Gibbons | lgibbon2@mlive.com

Both Gov. Gretchen Whitmer and the Republican majority in the Legislature are hoping to spin the state’s historic surplus into tax relief for Michigan residents.

The state currently has billions of extra dollars at its disposal due to federal pandemic and infrastructure aid, as well as a surplus in state revenue. Although the bonus bucks won’t last forever, state officials say the money can help fund major one-time investments and free up space for targeted tax credits or cuts.

What ultimately shakes out remains to be seen. There’s some shared interest in lowering taxes in the aftermath of the COVID-19 pandemic, but legislative Republicans will likely push for broader changes that could cut into the money available for Whitmer’s ambitious $74.1 billion budget plan.

Possibly complicating matters is the looming election cycle this fall — the final budget deadline for the fiscal year starting Oct. 1 is just over a month before the 2022 general election and every state House, Senate and statewide executive position on the ticket.

Below are some of the proposals that have been floated so far by Whitmer and state lawmakers.

Raising the Earned Income Tax Credit

Michigan’s Earned Income Tax Credit provides more than 730,000 low- to moderate-income working families an extra break on their taxes. If a person or family qualifies for the federal credit, the state of Michigan currently provides a 6% supplemental credit on state taxes, which averaged out to $150 per claimant during the 2019 tax year.

In her State of the State address and budget proposal, Whitmer proposed boosting the state Earned Income Tax Credit to its 2011 level of 20%. Her office estimates the change would save qualifying families an extra $300 per year.

For people struggling to pay their bills month-to-month while keeping food on the table and gas in their car, that money goes a long way, said Mike Larson, CEO and president of the Michigan Association of United Ways.

In addition to providing relief for struggling families, the change would also provide an economic boost, as much of that money would be spent locally, Larson said, calling the recommendation a “great step.”

“This is the time to support what I believe is a proven tool to positively impact Michigan working families, businesses and communities,” Larson said.

Repealing the ‘pension tax’

Whitmer is once again calling for reinstating tax credits for seniors who saw their costs go up a decade ago under changes backed by former Gov. Rick Snyder.

Whitmer proposed a phased approach to eliminate taxes on retirement income in the next four years. At the start, pensioners over the age of 65 would see taxes on retirement income reduced by 25%. Eligibility and the size of the exemption would increase each year until all pensioners are eligible for a 100% exemption by 2025.

The plan would save 500,000 seniors an estimated $1,000 each year when fully implemented, according to the governor’s office.

One supporter of the 2011 change was Senate Majority Leader Mike Shirkey, R-Clarklake. During a legislative panel hosted by the Detroit Regional Chamber in January, he said he continues to believe in that policy — but noted he’s open to tax reductions so long as they apply to everyone.

“I’m all in for tax reductions across the board, especially if they’re fair,” he said. “The move we made back in 2011 to make taxes on pensions fair still stands today. I would not support the repeal of that. However, I’d be happy to support a broad-based, for all pensioners, tax relief if that’s on the table.”

Electric vehicle credit

Whitmer also proposed a tax credit for people who purchase a new electric vehicle and set up an at-home charging station.

Under the plan, a Michigan resident who purchases an electric vehicle would get a $2,000 rebate and another $500 credit for in-home charging equipment. Coupled with a $7,500 federal credit for electric vehicle purchases, Michigan families could get up to $10,000 off their electric vehicle purchase if the proposal is approved.

Whitmer and other supporters of the plan said the proposal would help reduce Michigan drivers’ reliance on gas-powered vehicles as well as support the state’s auto industry.

“Governor Whitmer’s electric vehicle rebate plan will help more Michiganders get behind the wheel of EVs, combat climate change, and ensure our home state continues to drive the world into the zero-emissions transportation future,” Ford Motor Company Chief Policy Officer and General Counsel Steven Croley said in a statement.

Lowering personal and corporate income tax

Michigan Republicans have said the record revenue forecasts in recent months make it an ideal time for broad tax cuts that should extend to both individuals and corporations.

In January, the Senate Finance Committee approved a $2.3 billion tax cut that would lower the state’s personal and corporate income tax rates to 3.9% from 4.25% and 6%, respectively.

“Now is the time to keep the promise (of lowering taxes) 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,” Senate Finance Committee Chair Jim Runestad, R-White Lake, said in a statement.

The Senate Republican proposal also includes a $500 per child tax credit.

Exempt personal property taxes

Recently introduced House legislation from House Tax Policy Committee Chair Matt Hall, R-Marshall, would exempt all personal property taxes starting in the 2023 tax year.

In a release announcing the bill, House Bill 5702, Hall said personal property taxes are applied unevenly, prompt confusion and have in recent years impacted small businesses that lost money during the COVID-19 pandemic.

“The personal property tax also discourages investment in equipment and materials because owners know the more they get, the more tax they’ll have to pay on it – and that ultimately slows economic activity and progress,” Hall said. “We need a more common-sense approach.”

Hall’s bill does not currently include a mechanism for replacing the revenue that would be lost if such an exemption were to take effect.

More legislative proposals coming

As lawmakers prepare their own budget alternatives in the wake of Whitmer’s budget proposal, legislative Republicans said they anticipate taking a broader tax cut approach than the governor to help all Michigan residents hard hit by the pandemic and inflation.

“We are likely to share some common themes, but specifics may vary quite a bit,” House Appropriations Chair Thomas Albert, R-Lowell, said in a statement last week. He said the House plan will “focus more on tax relief and sustainable year-to-year spending.”

The final budget will need buy-in from the House, Senate and Whitmer to become law.