Michigan House Republicans are pushing to lower the state’s personal income tax rate.
The plan would reduce the tax rate from 4.25% to 3.9% and expand exemptions for people over the age of 62.
Lawmakers revealed details Thursday at a joint meeting of the state House Appropriations and Tax Policy committees.
Tax Policy Chair Representative Matt Hall (R-Marshall) said he’s willing to look at spending cuts to pay for his proposal.
“The people of Michigan do not believe that we can’t find money in the budget to save given how they’ve seen our state budget explode over the last four years,” Hall said.
But some Democrats expressed concerns about how higher earners would stand to benefit much more from the cut than lower-income residents.
“If we really want to help all of Michigan, we would repeal the pension tax completely and provide [an] earned income tax credit,” Rep. Tenisha Yancey (D-Detroit) said.
The House Fiscal Agency estimated the changes would reduce state revenue by around $4.4 billion across the 2022, 2023, and 2024 fiscal years.
Democratic lawmakers said the move could put federal State Fiscal Recovery Fund money the state received at risk.
“Federal relief dollars that we received actually made stipulations to protect states from taking financial measures that were not sustainable and put prohibitions on tax cutting when we’re using this federal relief money,” Rep. Julie Brixie (D-Meridian Township) said.
The federal American Rescue Plan Act requires states to bring in more than their baseline tax revenue amount or pay for any cuts by returning some of that recovery fund money or cutting spending.
Hall said he crafted his bill so the state wouldn’t lose any federal money.
“The reason is because the additional income that’s come into the state through the sales and use tax and the fact that we’re using ongoing funding for this, not onetime funding,” he said.
The Tax Policy Committee ultimately voted to advance the measure to the full House of Representatives.
It comes a little over a week after the state Senate gave its approval to its own tax cut bill, and as the state enters budget negotiations.
The Republican proposals offer broader tax cuts than Governor Gretchen Whitmer's budget plan.
“We have an opportunity to make even greater investments in the things that matter most to Michiganders, all while eliminating the retirement tax to save seniors $1,000 per year on average and cut taxes for working families to put $3,000 back in people’s pockets,” the governor's spokesperson Bobby Leddy said when asked for a comment.
Following the committee meeting, Hall indicated a preference for his plan over the governor’s.
“Retirement income? You’ll get $40,000 tax free, $80,000 if you’re a joint filer, and that’s more than anyone else has proposed, including the governor,” Hall said.
Meanwhile, a $1.5 billion supplemental spending bill made it out of the House Appropriations Committee at Thursday morning’s meeting.
The bill would put money toward grant programs to help local governments beef up their retirement systems.
Appropriations Committee Chair Thomas Albert (R-Lowell) said there are two ways to fix an underfunded pension system:
“You can put money into it, or you can cut the benefit. This is an attempt to fix it through the more positive route where people don’t get hurt. It’s a very, very simple bill,”
Democrats on the committee unsuccessfully introduced 25 different amendments to the bill before it advanced.
