House Republicans on Thursday began passing legislation that would cut Michigan’s income tax, provide tax breaks for more retirees and help local governments reduce their pension debt.
One bill would cut the 4.25% income tax rate to 3.9%. It would lower the age at which filers can deduct up to $20,000 individually or $40,000 jointly from 67 to 62 and allow an additional exemption of up to $20,000 or $40,000 for retirement income not covered by the standard deduction.
Another measure would spend $1.5 billion of a $7 billion surplus to shore up pension systems — $1.15 billion for municipalities and $350 million for the state police.
Two GOP-led House committees unveiled and approved the bills at a joint meeting. The full House could take them up next week.
“This will be a tax cut for every Michigan worker and Michigan family, not just some,” said House Tax Policy Committee Chair Matt Hall, a Marshall Republican and sponsor of the tax measure.
Democrats abstained from voting on the tax cuts, questioning the impact for low- and moderate-income earners compared with the wealthy. They instead supported Democratic Gov. Gretchen Whitmer’s more targeted, less sweeping proposals to restore a tax credit for low-income workers and gradually repeal the increased taxation of retirement income and pension benefits that started a decade ago.
Hall said the House retirement tax plan is “bolder” than Whitmer’s and one recently advanced by Senate Republicans.
“It will really give our seniors and our retirees the relief they need during these difficult times,” he said, pointing to high inflation.
He estimated that an average family of four would save $140 a year and seniors “much more.”
Democrats, noting that Michigan does not have a graduated income tax, said people in the bottom 20% of income (less than $23,000) would save $12 on average while those in the top 1% (at least $539,000) would save $4,901.
“How much do you think the top 1% are actually struggling?” Rep. Tanisha Yancey, a Harper Woods Democrat, asked during the hearing.
“The Republicans on this committee are trading tax cuts for rich people today for devastating cuts to essential public services in the future,” said Rep. Joe Tate, a Detroit Democrat.
Democrats also raised concerns about the state potentially having to return federal pandemic relief funding if tax cuts reduce baseline revenue. Republicans said the tax reductions would be paid for with ongoing revenue gains and unspecified spending cuts.
“We’re not going to jeopardize federal funding,” Hall said.
The tax cuts would cost $2.4 billion in the next fiscal year, close to the $2.5 billion reduction approved by the Senate. Unlike the Senate proposal, the House plan would not lower the corporate income tax or bring back a child tax credit.
Whitmer’s proposal would cost $757 million once phased in by the 2025 tax year. She has said retirees would save more than $1,000 annually while people qualifying for the earned income tax credit would get an additional $300.
Asked Wednesday if she would consider an income tax rollback, the governor said the first thing to do is alleviate taxes that were shifted to seniors and low-income earners under a 2012 law that slashed business taxes. She said she wants to ensure during budget negotiations “that one-time dollars are not spent on ongoing needs.”
The bill to bail out retirement systems would allocate $900 million to municipalities with a funded ratio at or below 60%, $250 million to those funded at or above 60% and $350 million to the state police system. No local plan could receive more than $100 million.
The sponsor, Republican House Appropriations Committee Chair Thomas Albert of Lowell, said it would help to make sure that retirees get their benefits and that children and grandchildren are not saddled with footing the bill.
“Giving tax relief to our seniors does them no good if their pension that they earned runs out of money,” he said.
