Federal tax overhaul might prompt changes for state code

Melissa Nann Burke, and Christine Ferretti

Washington — Gov. Rick Snyder’s administration might move to adjust Michigan’s tax code to ensure a federal tax overhaul does not have “unintentional consequences” for the state, Lt. Gov. Brian Calley said Tuesday.

“We want to make sure we make the adjustments in our state tax system, so that nobody at the state level receives a tax increase because of going from an itemized approach, to a larger standard deduction approach,” Calley said during a visit to a public school in Detroit.

Snyder told Gongwer News Service this week that a decision by Congress to repeal the federal personal exemption would likely increase the amount of state income tax paid by some individuals in Michigan – an increase estimated at $170 a person in a household.

That’s because the number of exemptions claimed at the federal level affect those claimed at the state level. If it happens, Snyder might look at a mechanism to offset that hike, he told Gongwer.

But even as the U.S. House passed the sweeping Republican tax bill Tuesday, Snyder’s administration indicated it didn’t yet have a firm analysis of the legislation’s potential effects on state revenues. The Senate was expected to take up the bill Tuesday evening.

“We won’t have any specific information to share on the federal tax bill until Congress approves it, and we have a chance to review the final version,” Snyder spokesman Ari Adler said.

A spokesman for the state Department of Treasury said, “Until we see the detailed bill that passes Congress, we won’t have the state-level impacts.”

The Senate Fiscal Agency also hasn’t looked into the federal legislation because it is working on the state budget forecast.

The GOP-crafted legislation passed the U.S. House with no Democratic support Tuesday afternoon – the broadest rewrite of the tax code since 1986.

The legislation would cut the top rate for individuals from 39.6 percent to 37 percent.

The standard deduction nearly doubles from $6,500 to $12,000 for individuals, and from $13,000 to to $24,000 for joint tax-filers.

This means fewer taxpayers will need to itemize their returns in order to reduce the overall tax they owe. But, as mentioned earlier, the personal and dependent exemption is repealed, reducing the benefit of the higher standard deduction for many filers.

The bill will slash the corporate tax rate from 35 percent to 21 percent, and give multinational corporations a one-time tax break on profits they’ve kept overseas – an effort to get them to bring those assets to the U.S.

Republicans predict the tax break for businesses will boost economic growth and create jobs for American workers.

“I talked to business workers across my district and they have had the same message: Cut taxes, so they can increase wages and hiring,” Rep. Paul Mitchell, R-Dryden, said on the House floor Tuesday.

“Americans pay more in taxes than they pay for food and clothing. It’s time to fix this. This tax plan does that.”

Rep. Sandy Levin of Royal Oak, a senior Democrat on the tax-writing Ways and Means Committee, called the GOP plan a “sham” and “one of the most deceitful bills I have ever seen” during 35 years in Congress.

“It is deceitful when Republicans say the bill is focused on the middle class, while it’s really aimed at making the very wealthy even wealthier and forcing millions of middle class families to pay higher taxes,” Levin said on the floor.

“It is deceitful when they say it makes the tax code simpler, even as the legislation creates complicated new loopholes, while allowing existing ones, such as carried interest, to continue.”

Rep. Louise Slaughter, D-New York, quoted former NYC Mayor Michael Bloomberg saying it’s “pure fantasy” to believe the plan will lead to significantly higher wages or growth.

“This is really a remarkable time in the United States, knowing we are on the brink of passing a bill that will adversely impact virtually every American except the rich,” Slaughter said during debate.

“The majority has the votes, and there’s not much Democrats can do to stop it.”

Congress’ own nonpartisan scorekeeper, the Joint Committee on Taxation, said Monday the legislation would initially mean an average tax cut for Americans across all income levels.

That would change by 2027 – a year after most individual provisions expire – when taxes would go up for people earning up to $75,000, the panel forecasted.

GOP leaders say they expect future lawmakers would extend the tax cuts beyond 2026 to ensure they don’t expire.

Jonathan Oosting contributed