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Legislature again OKs tax cuts; Whitmer floats $500 rebate

Michigan Capitol Building photo
Michigan Senate
Michigan Capitol Building

Parties remain at odds over the scope and immediacy of any relief.

Both Democratic Gov. Gretchen Whitmer and the Republican-led Michigan Legislature proposed new plans to cut taxes Thursday but remained at odds over the scope and immediacy of any relief.

Whitmer called for a one-time $500 election-year rebate for “working families,” adding to her earlier proposals to gradually repeal a tax on retirement income and fully restore a credit for lower-wage earners. GOP lawmakers in turn quickly passed sweeping $2.6 billion legislation that would permanently reduce the state income tax in 2023, increase the personal exemption, raise it for seniors, create a child tax credit, fully reinstate the credit for low-income workers, and revise and expand a break for disabled veterans.

Whitmer vetoed a plan that included some identical or similar provisions two months ago, saying it would have reduced funding too much and put key government functions at risk. Another veto is likely.

The steps Thursday came a day before Whitmer’s administration and legislative economists are expected to revise tax revenue estimates in Michigan’s two main accounts upward by billions of dollars for both this fiscal year and next. Pandemic-related budget surpluses are going to be even larger than was forecast in January.

“Let’s take advantage of our additional revenue to put money in people’s pockets and deliver real relief right now to taxpayers,” the governor wrote in a letter to legislative leaders, citing high inflation. Specifics on eligibility for the rebate were not released, nor was the price tag.

Senate Majority Leader Mike Shirkey accused Whitmer of “pandering ... to try to cover up for all the pain and suffering that she’s been complicit with over the past two years.” The GOP bills, he said, are “sustainable,” ongoing and would cut taxes by $1,300 a year for an average family with two children.

“Who’s to say that we’re done? We are only beginning,” Shirkey said during remarks from the Senate floor.

Whitmer, however, told reporters that the Republican proposal “is not a real plan” and would not give people tax relief soon. A rebate, she said, “is the quickest way... to help people who are struggling right now.” She expressed concern that the “massive move” by legislators would hurt the ability to spend on education, job training and to land business expansions in Michigan.

Under the legislation headed to Whitmer, the state income tax would drop to 4%, from 4.25%, in 2023. The personal exemption would rise by $1,800, to $6,700. People ages 67 and older could deduct more — $21,800 ($43,600 if filing jointly), figures that would rise annually with inflation. The current limits are $20,000 and $40,000.

The earned income tax credit would go from 6% of the federal credit to 20%, where it was before a change a decade ago. Parents could qualify for a $500 per-child tax credit. A tax break for disabled veterans and their families would be expanded.

The main measure was approved on a 22-14 party-line vote in the Senate. The House passed it 69-34, with some Democrats in support.

The bill would reduce revenue by $2 billion in the next budget year and $2.6 billion in the 2022-23 fiscal year. A related Senate-approved tax bill cannot be approved by the House until next week.