The plan would also allow people age 62 and older to deduct up to $40,000 annually from their income tax, or $80,000 for co-filers.
Supporters of the plan — such as House Fiscal Policy Committee Chairman Matt Hall, R-Marshall, and House Appropriations Committee Chairman Thomas Albert, R-Lowell — have said the plan gives priority to working families in Michigan.
“Under this plan, everyone benefits. All workers, all seniors, all families,” Hall told reporters Thursday after unveiling the proposal at a joint hearing between House Appropriations and Tax Policy Committees.
Critics, however, argue that the plan would direct more tax relief to wealthier Michiganders than to low- and middle-income workers. Alex Rossman, spokesman for the Michigan League of Public Policy, which opposes the proposal, said in a Thursday press release.
Under the house plan, an individual earning $20,000 per year would save $52.85 in state taxes, while an individual earning $400,000 per year would save $1,382.85.
“Legislative Republicans are pushing for sweeping, sweeping tax cuts that primarily benefit wealthier residents and businesses while significantly decimating our current and future state budgets in the process,” Monique Stanton, President and CEO the leadership of the Michigan League of Public Policy, said in a statement.
The House GOP plan is the latest of several rival proposals as tax cut talks come to a head in Lansing. Michigan Senate Republicans have rolled out a plan to provide tax relief to businesses, individual workers and seniors. Democratic Governor Gretchen Whitmer, who called the Senate plan ‘unsustainable’, pledged to repeal the state’s ‘pension tax’ – a tiered system that taxes retirement income based on of the taxpayer’s date of birth – and to increase the Earned Income Tax Credit for low-income workers.
The final state budget is likely to change from proposals made so far by the House, Senate and governor’s office, as Republican leaders in the Legislative Assembly and the Democratic governor negotiate a deal.
“Governor Whitmer has always said she will work with anyone who wants to work together to solve problems and get things done,” Whitmer spokesman Bobby Leddy said in an email.
The plans come at a time when the state is trying to spend $7 billion in surplus revenue and another $7 billion in federal stimulus funds. Stimulus money, however, cannot be used to fund tax cuts under federal rules.
According to an analysis by the House Fiscal Agency. In context, the state collected $31.4 billion in taxes and royalties in fiscal year 2020, including $10 billion in income tax, according to the full state financial report.
Albert and Hall have said they may consider budget cuts to cover the revenue shortfall, but are confident their plan is sustainable.
“Where there is a will, there is a way,” Albert told reporters. “We have so many options on the table. … We’re not operating at 100 per cent efficiency, so yes, there are areas in the budget that we can comfortably (reduce).
“There are a lot of options on the table,” Albert said. “No one is going to believe that we can’t find the money.”
Neither Albert nor Hall, however, named areas of the state budget they thought could be cut.
Opponents say the price of the House bill is too high.
“These costs will force the state to cut public services we all rely on or risk losing vital federal assistance provided under the American Rescue Plan Act, dollars intended to help workers, families and struggling businesses to recover from the economic impacts of the pandemic,” Rossman said in a statement on behalf of the Michigan League of Public Policy.
By comparison, the Senate plan would cost about $2 billion a year. Whitmer’s plan to phase out the pension tax would cost the state $13 million in the current fiscal year and $495 million annually by fiscal year 2025. income tax credit would result in a $262 million drop in revenue each year.
Hall said he came up with his own plan because the other proposals benefited certain groups of people rather than all Michiganders.
“We’ve seen business benefit, we’ve seen some people benefit from it. Pick a few, but not everyone,” he told reporters.
House Republicans’ plan includes the same personal income tax cut proposed by Senate Republicans – lowering the rate from 4.25% to 3.9%.
Hall, who is sponsoring the legislation, on Thursday cited the state’s economic situation as the reason for lowering the tax rate to 3.9% – before former Democratic Governor Jennifer Granholm raised it to 4.35% in 2007 to make up for a deficit of $2 billion. Granholm promised to cut the rate to 3.9% within a few years, but his successor, Republican Rick Snyder, froze the rate at 4.25% today.
“Now we’re sitting on more money than ever,” Hall said Thursday. “If we can’t get it down to 3.9 now and give people a tax break, they never will.”
Hall’s proposal would also provide income tax relief to people aged 62 and over, broadening and increasing an exemption currently limited to people aged 67 and over. A working senior in Michigan could deduct $20,000 from taxable income, while a retiree would be allowed to deduct $40,000. Those numbers are doubled if the seniors file jointly, meaning a retired couple age 62 and older earning $80,000 a year would receive all that income tax-free.
James Hohman, director of tax policy at the Mackinac Center, hailed the House tax cut plan as a way to “make Michigan more competitive, encourage small business development, and … help the ‘state to attract more residents’.
Democratic lawmakers on Thursday expressed concerns that the plan would unfairly benefit wealthier taxpayers. Representative Tenisha Yancey, D-Harper Woods, tried unsuccessfully to present Whitmer’s proposals to the joint committee on Thursday.
“How much do you think the top 1% is actually struggling?” Yancey asked Hall during Thursday’s hearing, referring to the Michigan League of Public Policy study. “Is it fair? »
Hall insisted his plan helps all Michiganders.
“People want relief, everyone,” he said. “There are no gimmicks here.”
Although the plan will cost the state about $2 billion a year in revenue, Hall and Albert said they weren’t worried about the long-term fiscal impact of their proposal and said it would be financed entirely by the State’s own revenues.
Albert said he’s prepared to cut state spending to fund the tax cut, but didn’t specify in which areas he sees obsolete funding.