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How do tax cut plans of Michigan Gov. Gretchen Whitmer, Republicans compare?

piggybank next to coins
Michigan is sitting on a surplus of as much as $7 billion. Democrats and Republicans say residents are entitled to get some of that money back but disagree on particulars. (Shutterstock)

Michigan has a budget deal. But cutting taxes has proved difficult for Republicans who control the Legislature and Democratic Gov. Gretchen Whitmer.

Whitmer on Thursday signed a $20 billion education budget on Thursday that increases per-pupil funding by $450 to $9,150 per child. She said she’d sign the rest of the $77 billion budget next week.

Sponsor

But those plans leave $5 billion to $7 billion more in surpluses that both sides say should be part of tax relief for Michigan residents. 

Related stories:

Whitmer wants a $500 “inflation relief” check to many families, along with tax cuts for the working poor and lower tax rates for senior citizens. 

She has vetoed two proposed tax cuts from Republicans that would, among other things, lower the income tax rate while offering a big child-tax credit.

Whitmer calls her plan the most responsible – it provides immediate relief and doesn’t force future budget cuts. Legislators have mocked Whitmer’s $500 check proposal as election-year “pandering” and say their plan, with a 0.25 percentage point cut in the state income tax rate, makes Michigan more attractive for people and businesses considering a move.

Both sides are continuing to negotiate, and Bridge Michigan is crunching the numbers.

Bottom line: Whitmer’s plan would offer immediate relief and most help the working poor and those with retirement income. 

The legislative plan would delay savings, but the breaks would be more widespread and substantial, especially for families with children under 19. But the plan would require discussions on cutting the state budget on the eve of a potential recession and while the state still faces massive infrastructure improvement costs.

Here’s a look at how we crunched the numbers and how the plans compare.

Whitmer’s plan

The governor initially unveiled a $757 million tax cut in January. The big highlights were a tax cut to the working poor and exemption of retirement income from the state’s income tax.

In May, Whitmer upped the ante and pitched a proposal to give $500 checks to “working families,” though she did not specify how those would be defined.

The specifics

‘Inflation relief’ checks

The administration did not respond to a request from Bridge Michigan for details on the $500 rebate. But Sen. Curtis Hertel Jr., D-East Lansing, proposed in May that families with an adjusted gross income less than $250,000 get the $500 plus an additional $100 for each dependent.

Savings: (all examples consider their income matches their federal adjusted gross income): $500 per family

Cost to the state: There’s no official estimate.  But in 2019, roughly 95 percent of the 4.9 million returns filed with the state had an adjusted gross incomes below $250,000. 

If all qualified for the $500, it would cost more than $2 billion.

Lower taxes for seniors

In 2011, the tax reform package championed by then-Gov. Rick Snyder eliminated the exemption on public pensions — like those earned by teachers, firefighters and municipal workers — that had been in place for decades. Critics, including many Democrats, called it a “pension tax.”

What it did was make all retirement income equal, be it a private or public pension or from an individual retirement or a 401-K account. The first $20,000 of an individual’s income or $40,000 for those filing jointly, was the standard exemption going forward.

Whitmer has proposed gradually making all public pension income exempt and expanding the deduction of other retirement income: $56,961 (individual) or $113,922 (couples), likely covering most taxpayers. 

That would likely cover most seniors, as the average household income for retirees in Michigan is $24,400, according to the U.S. Census Bureau. (Social Security income, which averages nearly $21,000 per qualifying household, is exempt from the state income tax.)

Savings: Roughly $1,000 per year for 500,000 households when the plan is fully implemented in 2024-2025, according to the Whitmer administration.

Cost to state: $495 million.

Relief for the working poor

Under Whitmer’s proposal, the working poor would get a bigger state tax credit. 

Now, Michigan families eligible for a federal “earned income tax credit,” which is applied to federal income tax and can result in a refund, can get a similar break on their state income taxes.

Let’s say a family of four qualified for an EITC and got a $2,500 federal credit, which the governor’s office said was the average credit in the state for those eligible. Their Michigan EITC would be equal to 6 percent of that, or $150, on their Michigan income taxes.

Whitmer’s plan calls for raising that threshold to 20 percent — or $500, a $350 increase. She claims it would help 730,000 state residents and cost the state treasury $262 million. 

Only single people making less than $21,430 are eligible, though married couples with up to three children making up to $57,414 are eligible. The biggest benefit, however, is for those making less income.

The Legislature’s plan

Whitmer vetoed a plan earlier in the year but in May the GOP-led legislature approved a new bill, eliminating a provision that cut the corporate tax rate and adding the same Earned Income Tax Credit change that Whitmer championed. 

It passed 22-14 in the Senate with just Republican support but it passed 69-34 in the House with bipartisan support.

Whitmer also vetoed it, claiming it could lead to potential cuts in the future.

Income tax break

The plan calls for rolling back the state’s income tax rate from 4.25 percent to 4 percent, coming close to honoring a pledge from 2007 when the rate rose to 4.35 percent as then-Gov. Jennifer Granholm and legislators dealt with a huge deficit. 

The rate was supposed to fall back to 3.9 percent but the Snyder tax plan of 2011, which greatly lowered taxes on businesses, set the rate permanently at 4.25 percent.

For taxpayers, the proposed change would save them $25 on every $10,000 of taxable income. If they had $50,000 in taxable income — after all deductions and exemptions, they’d save $125 over the current rate. If they had $100,000, they’d save $250.

Savings

Single filer, no kids, making $45,000: $113

Couple with two kids making $80,000: $200

Couple, no kids, making $200,000: $500

Cost to state: $841 million.

Bigger personal exemption

The legislative plan also called for a steep increase in the personal exemption, from the current $5,000 to $6,800. That would shield another $1,800 from the income tax, a savings per exemption of $72 if the income tax rate was rolled back to 4 percent as well.

Savings:

Single filer, no kids, making $45,000: $72

Couple with two kids making $80,000: $288

Couple, no kids, making $200,000: $144

Cost to state: $502 million

Bigger exemption for seniors

Under this plan, the personal exemption for those 67 and older would rise from $20,000 for individuals or $40,000 couples to $21,800 and $43,600. It would exempt some additional income — earned or from retirement — but leave intact the current system. For an individual, the savings would be $72, for a couple, $144.

Savings: No impact on typical working families until they reach 67 years old.

Cost to state: $64 million.

$500 child tax credit

For families this is perhaps the biggest break: it calls for a $500 per child tax credit for those 18 and younger. If a family with two children had a tax bill of $2,000, the tax credit would lower it to $1,000. 

However, the credit is not refundable, meaning if it more than erased the tax bill, families would not get a refund check.

This provision would lower state taxes by an estimated $775 million.

Savings:

Single filer, no kids, making $45,000: $0

Couple with two kids making $80,000: $1,000

Couple, no kids, making $200,000: $0

Relief for the working poor

The Legislature’s initial tax cut plan did not include a break for the working poor. However, the latest proposal mirrored the governor’s request to push the state earned income tax credit to 20 percent of the federal EITC, up from 6 percent.

Disabled vets

Lawmakers also want to expand tax relief for disabled military veterans and widows or widowers of those killed in combat. The package would create a state income tax credit and expand eligibility for property tax relief.

The bottom line

Whitmer plan

Single filer, no kids, making $45,000: $500

Couple with two kids making $80,000: $500 (or $700 if Sen. Curtis Hertel’s $100 per child plan was adopted)

Couple, no kids, making $200,000: $500

Legislative plan

Single filer, no kids, making $45,000: $185

Couple with two kids making $80,000: $1,488

Couple, no kids, making $200,000: $644

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