How Michigan tax proposals will affect you ‒ and the state budget

Gov. Rick Snyder

Gov. Rick Snyder wants to pass a law that will save an average family of four in Michigan $34 annually on its state income taxes by 2021.

Yet some GOP lawmakers, who hope to give tax cuts to their constituents before many of them face voters this fall, say Snyder’s tax savings don’t go far enough to help working families.

Michigan tax cuts: Calculate how proposals would impact you

Gov. Rick Snyder and Michigan legislators are trying to stave off a state tax increase for most taxpayers after the recent federal tax overhaul essentially eliminated the state exemption. Some Republican lawmakers want to go beyond Snyder's proposal, and are considering measures that would include an immediate income tax cut and bigger ones in later years ‒ which would trigger bigger drops in state revenue.

Enter the number of tax exemptions you take to see how the different proposals would affect you, and the state budget. 

Gov. Snyder's proposal

Year $ per exemption
(current law)
Taxpayer savings
above current law
Impact on state
revenue
2018 $4,000 ($4,000) no savings None
2019 $4,150 ($4,100) $  -$8 million
2020 $4,375 ($4,200) $  -$45 million
2021 $4,,500 ($4,300) $  -$60 million

House proposal

Year $ per exemption
(current law)
Taxpayer savings
above current law
Impact on state
2018 $4,300 ($4,000) $  -$45 million
2019 $4,600 ($4,100) $  -$158 million
2020 $4,800 ($4,200) $  -$173 million
2021 $4,800 ($4,300) $  -$158 million

Senate proposal

Year $ per exemption
(current law)
Taxpayer savings
above current law
Impact on state
2018 $4,500 ($4,000) $  -$111 million
2019 $4,600 ($4,100) $  -$184 million
2020 $4,700 ($4,200) $  -$150 million
2021 $5,000 ($4,300) $  -$189 million

“His suggestion is pretty slim,” said state Sen. Jack Brandenburg, a term-limited Republican from Macomb County’s Harrison Township, who backs a proposal that would save that same family $119. “I don’t think any of us want to go back home and start boasting that we enacted tax legislation that will get you $34 a year.”

A fresh round of talks about state income tax cuts is taking shape — this time in an election year, when all 148 Michigan legislative seats are open and cutting taxes is a hot topic on the campaign trail.

Opinion: Tax cuts over college grads ‒ no wonder Michigan struggles
Related: Michigan gives more tax breaks than it collects for schools, government​

About the bills

The Michigan House and Senate are considering separate legislation to increase Michigan’s personal income tax exemption.

Senate Bills 748-50: Would increase personal exemption to $5,000 by 2021 and offer credits for child care. All three bills passed unanimously in the Senate.

House Bills 5420-22: Would increase personal exemption to $4,800 by 2021 and offer credits for seniors at least 62 years old. All three billspassed out of the House tax policy committee Wednesday.

 

Snyder and Republican lawmakers in the state House and Senate are working to fix an unintended consequence of recent federal tax reform that could cause Michigan taxpayers to pay up to $1.5 billion more in state income taxes after Congress eliminated the federal personal exemption.

That same family of four could wind up paying $680 more in state income taxes without an adjustment from Lansing, state Treasurer Nick Khouri told Bridge Magazine.

The governor and legislators also want to increase the size of the personal income tax exemption. Legislators, though, want a higher exemption limit than Snyder, saving taxpayers a little more money but at the expense of an already strained state budget. Republican lawmakers say Lansing can afford to let its residents keep more of the money they earn. Snyder, an accountant, says the Legislature hasn’t shown how it will pay for its plan.

Consider: Saving taxpayers $34 a year would mean an annual budget hit of $60 million in 2021 ‒ about what the state currently spends on the department that regulates insurance and financial services.

Sen. Jack Brandenburg, R-Harrison Township

Raising those savings to $119 a year would hardly lift the fortunes of struggling families, but would mean a more than $200 million revenue loss to the state’s general and school budgets, an amount that would fund, for instance, the average salaries of more than 3,200 Michigan teachers.

Since income tax is the state’s main general fund revenue source, a drop of, say, $150 million in state revenues would affect the budget, said Jordon Newton, a research associate with the Citizens Research Council in Lansing, which released a recent paper about the state’s future spending pressure.

“It’s not necessarily imminent, but we are probably closer to the next recession than we are to the last one at this point,” Newton told Bridge. “If revenues were (to) start to take a hit — particularly with the income tax, which is very reactive to that kind of shock — the budget could see a lot more pressure ratchet up pretty quickly.”

Republican leaders say, however, that state taxpayers could use some help now.

“I think it’s appropriate…at this moment in time that we give the taxpayers a break,” Brandenburg said. “The Michigan taxpayer has not seen any significant tax relief for 20 years. Businesses have, but not your ordinary working-class families that support us every day of the week.”

The drumbeat for tax cuts is echoed among House leadership.

“The state budget has continued to grow, and it’s high time that we put more money into our hardworking citizens’ pockets,” House Speaker Tom Leonard told reporters Tuesday after Snyder’s final State of the State address. “I believe more money in their pockets is much better than in the state coffers.”

House Speaker Tom Leonard

While businesses have indeed fared far better than individuals under Snyder tax policies, Bridge reporting has shown Michigan is already in the bottom half of states in state taxes per capita, as well as in taxes as a percentage of personal income.

The governor, though, has talked often and urgently about the need to rebuild the state’s frayed infrastructure, improve struggling schools and produce a more talented workforce, all of which cost money, lots of it, for which the state will need more revenue, not less.

The governor’s office cites ongoing tax credit payments to companies, expansion of a $200 million property tax credit for homeowners and $150 million in the first wave of income tax revenue diverted to pay for roads. 

The road-funding package signed into law in 2015 will divert $600 million per year to roads starting in 2021.

He has challenged the Legislature to avoid tax cuts the state is unable to pay for, including in his State of the State speech Tuesday.

“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 the kids that are beyond,” Snyder said. “I don’t think that is right, either. If we’re going to do something, let’s make sure we’re paying for it.”

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Comments

Robyn Tonkin
Thu, 01/25/2018 - 10:04am

The interesting thing about the Michigan tax code, currently, is the way the state taxes retirees who receive pensions. If you are not a pensioner, you will not notice the complex calculations for deductions, based on the taxpayer's birth year, that retirees with pensions must perform. What these calculations do, is allow the state to create tiny classes of retirees, using cohorts of people born, for instance, from 1947 to 1955, as an example, and tax these people differently than other retirees with pensions. This method of taxation, based undoubtedly on complex algorithmic reasoning, allows the state in a round about way to do things it says it does not do, like tax military retired pay. Giving people in broad inclusive classes, such as all people over 65, a tax break for being old and on reduced income is one thing, in my opinion, and a behavior long established in the state and federal tax codes. but to tease out small groups of pensioners over 65, from the entire cohort of 65+ year old pensioners, and make the small group pay far more in taxes then 65+ year old pensioners not in that age class, is something else again.

Matt
Sat, 01/27/2018 - 6:12pm

Trying to understand your complaint, the state taxes interest and dividends, and part time jobs, and IRA distributions all that retirees use to support themselves, so why should just this one source of retiree income be exempt? How does this make you any different than everyone else that doesn't want to pay taxes, something you seem in general to be all in favor of as long it is someone else paying? The 65+ demo has been been proven to be the wealthiest age group out there.

Rick
Thu, 01/25/2018 - 11:34am

The race to the bottom where our infrastructure (already in poor shape) deteriorates further and the wealthy pass less and less.
This is just like what Snyder and his fellow Republicans did when he came into office: pass a big tax cut ($1.8 billion), jobs didn't shoot up and then when we needed to fix our roads we made it a tax on the middle class.
More smoke and mirrors for the sheeple.

David Waymire
Thu, 01/25/2018 - 12:32pm

From an EPIC MRA poll one year ago: 13. Which of the following two statements comes closer to your view?
The most important thing state government can do to provide more and better jobs and a higher quality of life for Michigan families is provide a quality education, good roads and transportation, quality public services like safety, water, fire protection, parks and libraries that create an environment in which people want to live, work and run a business.
OR
The most important thing state government can do to create more and better jobs and improve the quality of life in Michigan is to cut taxes for individuals and business. That’s what really creates more and better jobs and will make our state a better place to live and work.
67% Statement 1 – provide a quality education, good roads & transportation, & quality public services
30% Statement 2 – cut taxes for individuals and business
3% Undecided/Refused

Kevin Grand
Thu, 01/25/2018 - 12:40pm

Curious, Ms. VanHulle failed to mention anywhere in her article that under Gov. Snyder, the revenue Lansing collected from Michigan Taxpayers (and NOT from the federal government) increased 9.7% during his administration.

http://www.michigancapitolconfidential.com/24279

How many people can claim that their own household income had risen anywhere near that amount over the past decade?

Since Michigan Republicans felt so strongly that Gilbert Bills are good for the state's economy, I see absolutely no reason why that same logic doesn't extend to Michigan Taxpayers as well.

There are plenty of things that I'd like to buy if I could keep more of my own money.

I'll venture that there are many others who would do the same.

David Waymire
Mon, 01/29/2018 - 5:48pm

Kevin, check out the document linked below, from the Senate Fiscal Agency. It shows that state spending from state resources increased by 13.0 percent in the last decade. That the CPI increased 12. 4 percent. And that state personal income grew 33.33 percent. Now, maybe yours didn't...but someone's did. One of the things you will likely get to buy if we cut taxes (by about $30 a person, but a cumulative $250 million or do) will be a $120 new tire, a new filter to keep PFAS out of your water system, and a longer trip to the ER if your local hospital closes due to cuts in Medicaid. But hey, enjoy that $30.

Kevin Grand
Tue, 01/30/2018 - 12:27am

I cannot comment on a link that isn't there, David.

Zeke
Thu, 01/25/2018 - 5:38pm

Oh Come On - Just another case of Republicans trying to hold onto their majority in this case of doing the wrong thing that hurts the State's bottom line. $34.00 is chump change per individual but a very significant aggregate loss at the state level.
What are this idiots thinking??? That Michigan voters are stupid???

Mary Fox
Thu, 01/25/2018 - 7:28pm

Get rid of the pension tax and tax business. Take the 9.6 billion in giveaways to business back. If it's a free market, stop subsidizing the rich.

Mark
Fri, 01/26/2018 - 6:47am

Michigan needs to consider giving Seniors (especially those that never had children attend a public school) a Tax Exemption of the School Portion of Property Taxes. This is becoming a bit of a trend in other States and Individual Counties.

As a Republican, I am very disappointed that Gov Snyder Implemented a Pension Tax, Doubled the Auto Registration Fees, Declined to Rollback the Legislated Income Tax to 3.9%, etc

David Waymire
Mon, 01/29/2018 - 5:53pm

Mark, everyone in a community benefits when children get a good education. Even seniors with no kids. For instance, in Massachusetts, one of the nation's leaders in college attainment, folks without a high school degree average $24,717 in income; in Michigan, ranked in the bottom 20 of college attainment, those folks get $20,517 -- that's $4,000 a year more! Folks with some college or an associates degree make $40,706, vs. $32,435 in Michigan. So, yes, if you don't have a kid who to skip college and become a plumber, it's still smart for your tax dollars to help Jill next door make it...cause Jill will make enough money to help your non-college kid make more money than if we continue to have a state short of college grads.

Ed Carlson
Fri, 01/26/2018 - 1:57pm

If the State legislators were not serious about the tax savings it would be humorous. $34 per year equates to $.09 cents per day, and $119 equates to $.33 cents per day. Please keep the tax savings and improve our K-12 and Higher Education systems, and/or invest more heavily in infrastructure projects.