Michigan Senate approves 'huge' $2.5 billion tax cut amid fight over surplus

Craig Mauger
The Detroit News

Lansing — The Republican-controlled Michigan Senate approved a sweeping tax cut proposal Tuesday that would decrease state revenues by about $2.5 billion in the coming years.

The party-line vote in favor of the bill to reduce both the corporate and individual income tax rates was 22-16. It came as GOP legislators and Democratic Gov. Gretchen Whitmer have rolled out diverging visions for how to handle billions of dollars in surplus funds.

Whitmer has called for targeted tax cuts aimed at seniors and the working poor. She proposed a $74 billion budget for fiscal year 2023 last week with heavy investments in education and infrastructure. The total was 6% larger than the budget originally approved for this year.

However, Senate Republicans, like Sen. Mike MacDonald, R-Macomb Township, argued Tuesday the state should return more of its revenues to taxpayers and work to combat rising inflation.

"The time is now to let every Michigander keep more of what they earn so they can deal with this tax hike," MacDonald said. "Because make no mistake. That's what inflation is, an invisible tax increase, making it harder to buy things like groceries, heat homes and pay bills."

Jim Runestad

Of Whitmer's budget proposal, Sen. Jim Runestad, R-White Lake, said taxpayers would have to pick up the tab for "splashing money all over the state of Michigan." The GOP lawmaker said the Republican bill would provide relief for families and make the state more competitive economically. He described the tax cut as "huge" and the bill as "historic."

But Democrats criticized the plan, arguing Republicans were trying to score political points. Sen. Stephanie Chang, D-Detroit, said the proposal was "overly focused" on relief for corporations.

"This bill simply is not prioritizing Michigan workers who need a break," Chang said. "You know who needs the most targeted relief at this moment? Our hardworking teachers, social workers, health care workers, child care providers and other essential workers, the people who have been going nonstop during the pandemic for us."

The Senate GOP bill would reduce the individual income tax rate from 4.25% to 3.9% and the corporate income tax rate from 6% to 3.9%.

In addition, it would allow taxpayers to claim a nonrefundable credit of $500 against their income tax for each dependent child.

Under a change Tuesday, the proposed legislation would make people who are at least 67 years old eligible for a deduction against all types of income of $30,000 for a single individual income tax return or $60,000 for a joint return. The bill increases the amount of income certain seniors could deduct by $10,000 per return for single filers and $20,000 per return for joint returns, according to the nonpartisan Senate Fiscal Agency.

In the next fiscal year, which begins Oct. 1, the proposal would reduce state revenues by about $2.5 billion, according to Senate Fiscal Agency. The revenue loss would increase in later years as the economy continues to grow, the agency estimated.

The change to the individual income tax rate would drop revenues by about $1.1 billion next year. The change to the corporate income tax rate would drop them by $465 million.

The state has about a $7 billion balance or surplus that it is carrying into the next year, because of cuts made in 2020 in anticipation of pandemic losses and higher than expected state tax revenue in the last two fiscal years attributed to federal stimulus spending.  

Whitmer has called for expanding the Earned Income Tax Credit and a full repeal of the so-called pension tax for seniors.

State Budget Director Chris Harkins has warned that too large of a tax cut could run afoul of rules attached to federal COVID relief dollars, which generally don’t allow the federal money to go toward tax breaks without some corresponding cut increase in state tax revenue or a cut to Michigan's budget.

cmauger@detroitnews.com

Staff Writer Beth LeBlanc contributed.