Lansing — The House is moving quickly on a plan to restore and eventually increase the state’s personal tax exemption after the new federal tax law eliminated Michigan’s personal income tax exemptions.
A House panel approved a plan to restore Michigan’s current personal tax exemption and increase it to $4,800 by 2020 after the Senate adopted a separate but similar plan last week to push the state’s personal exemption to $5,000 by 2021. The full House is expected to vote this week on the package.
The House and Senate would need to reach a compromise on their conflicting legislation before it could go to Gov. Rick Snyder for his consideration.
The current exemption is $4,000 — expected to be worth $4,300 in a few years — and Snyder has said the federal tax overhaul law will lead to a $1.5 billion annual tax increase on the state as taxpayers lose their ability to claim the exemption.
The Senate plan would save the average family about $125 a year, according to Senate supporters. The House plan would save $100 a year for individuals and $200 for joint tax returns and would be adjusted to rise with inflation, according to the legislation.
“I still affirm that most Michigan taxpayers have seen nominal, if any real increases in their household incomes,” said Rep. Jim Tedder, R-Clarkston, chairman of the House Tax Policy Committee. “And so this, I believe, is just a small acknowledgment that we need to do just a little bit more for Michigan taxpayers at all levels.”
Tedder said the consensus among House Republicans is that the personal tax exemption increase should cost the state less than $300 million a year.
In July, Snyder rejected a proposal to increase a sales tax break for drivers who trade in vehicles to purchase new ones, calling the plan “not fiscally prudent” because it would mean a $300 million hit to the state budget over more than a decade. The House and Senate last week overrode his veto to make the proposal law.
Snyder’s tax restoration plan was also more modest, increasing the exemption to $4,500 by 2021.
During his final State of the State address Tuesday night, Snyder called for lawmakers to embrace fiscal responsibility as Republican lawmakers look to cut taxes.
“We have a broken culture in our political world where it’s OK to say we can spend money or we can cut taxes and do that now for short-term benefit and leave the bill for our kids,” Snyder said in his address. “I don’t think that’s right either. If we’re going to do something, let’s make sure we’re paying for it.”
Tedder said he doesn’t view the plan as a departure from the governor’s call for fiscal responsibility.
Gilda Jacobs, CEO of the Michigan League for Public Policy, said the House and Senate versions would cost too much and may “lead to cuts to the schools our kids attend, the roads we drive on, the police officers and firefighters that keep our communities safe and more.”