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Bridge Michigan
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Michigan lawmakers OK tax cuts for 1M residents, $1.1B spending plan

  • Democrats advance plans to eliminate ‘pension tax’ and expand Earned Income Tax Credit 
  • Republicans criticize tax bills as too narrowly focused
  • Legislature OKs $1.1B spending with $350M for businesses

March 8: Inflation relief checks v. income tax cuts. What saves you more in Michigan?
March 7: Gov. Gretchen Whitmer signs Michigan tax relief, minus $180 checks
Feb. 6: Michigan inflation relief checks: Whitmer seeks $180 per taxpayer
Feb. 3: Tax rebates planned by Gretchen Whitmer, Democrats as part of relief package

LANSING — Taxes for more than 1 million seniors and low-income workers would fall this year or next under a $944 million plan approved Thursday by the Michigan Senate.

The House approved its own, slightly more modest, bills Thursday evening.The two chambers must now negotiate a final product.

Democrats used their new majorities to speed up legislation that would tap into a $9 billion surplus. Republicans opposed some of the bills, arguing the state should provide relief to all residents with the kind of broad income tax cuts that Democratic Gov. Gretchen Whitmer twice vetoed last year. 

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The Senate’s 23-15 vote to repeal a so-called pension tax and 27-11 vote to expand the Earned Income Tax Credit came less than 24 hours after Whitmer used her State of the State Address to reiterate her call for targeted tax relief to combat inflation.

The House later approved its own pension tax repeal bill in a 67-41 vote and an Earned Income Tax Credit bill in a 100-8 vote. The latter won broad bipartisan support after Democrats removed a phase-in period and made it apply this year, winning support from Republicans who had proposed a similar plan.

Separately, Democratic majorities in the House and Senate approved a $1.1 billion spending plan that, pending expected Whitmer approval, will send $200 million to help a Swedish company modernize an Upper Peninsula paper mill, along with $150 million for a separate business attraction fund. 

The tax relief legislation would undo 2011 changes enacted under then-Gov. Rick Snyder, who lowered business taxes and ended several individual exemptions and credits. 

Democrats contend the pension tax was unfair to teachers, police officers, firefighters and others who had started their careers with the expectation their retirement income would not be taxed. 

On Thursday, Senate Democrats removed a four-year phase in period to instead end the tax next year by exempting all public pension income from taxation, along with some income from private pensions, 401k contributions and annuities. 

“Politicians have campaigned on this for many years, and it’s time to get it done,” sponsoring Sen. Kevin Hertel, D-St. Clair Shores, told reporters after the vote. 

“The reality is it’s time to get this tax off the books and allow our seniors to retire with dignity.”

GOP opposition

Republicans criticized the plan as too narrow because it won’t help seniors who are still working or have other forms of income not covered by the bills. 

“We should provide relief to all seniors, not just a select few,” said Senate Minority Leader Aric Nesbitt, R-Porter Township, who argued Democrats were providing a gift to former union presidents earning six-figure pensions

The Whitmer administration estimates that about 500,000 households will save an average of $1,000 under the proposed pension tax repeal. The Senate plan would cost the state government about $500 million a year in lost revenue. 

The Earned Income Tax Credit expansion is projected to save about 700,000 people an average of between $400 to $600 per year. Last year, families earning less than $57,414 qualified. 

The Senate legislation, which is more generous than a separate proposal from House Democrats, would expand the state credit from 6 percent of the federal version to 30 percent beginning in the current tax year. That would cost the state government about $442 million annually.

“This puts money in the pockets of working families now — when they need it the most,” said sponsoring Sen. Kristen McDonald Rivet, a Bay City Democrat. 

For decades, the program has helped Michiganders “pay for necessities like repairing homes, maintaining vehicles that are needed to commute to work, and in some cases, obtain additional education and training to boost their employability and earning power,” Rivet said.

The tax credit proposal is backed by a coalition of Michigan business and social groups, who contend the program is a proven way to incentivize work and lift people out of poverty.

But claiming the annual tax credit is "complicated" and "hard to follow," which opens the door to unintentional errors and potential fraud, said Sen. Tom Albert of Lowell, who was one of 11 Republicans to vote against the expansion. 

Democrats are pushing bills to "help some Michiganders, but not all," added Sen. Jim Runestad, R-White Lake, who claimed the policies could take Michigan back towards the "lost decade" of the 2010s, which were marked by massive job losses during the Great Recession. 

The Democratic bills may not be the only form of tax relief coming: Growing state revenues are also likely to trigger a personal income tax cut as a result of a little-known provision in a 2015 road funding law. 

Non-partisan agencies project the income tax rate could drop from 4.25 percent to 4.05 percent under the so-called trigger law. That would benefit all Michigan taxpayers, but on a per-dollar basis, wealthy residents would benefit the most. 

Hertel, who sponsored the Senate pension tax repeal, told Bridge he prefers to focus on targeted relief for seniors and low-income workers but has "no intention" of blocking the potential income tax cut. 

"We can do most of this," Hertel said Wednesday night after the governor's State of the State Address, noting the state’s $9 billion budget surplus. 

Officials are poised to spend about $706 million of that state surplus as part of a $1.1 billion appropriations bill that would also tap unspent federal funds, including COVID-19 relief dollars. 

'Generational investment'

The spending plan, unveiled Thursday evening and quickly approved by Democratic majorities in both chambers, includes $200 million for Billerud, a Swedish-owned company that is trying to upgrade its Escanaba mill to shift production from paper to more lucrative packaging projects. 

"It's a generational investment in the economy of the Upper Peninsula," said state Rep. Jenn Hill, D-Marquette. "Passing this bill will help us secure a $1 billion investment in a paper mill that will keep 800 jobs in the UP," along with construction jobs, she said. 

Pending Whitmer’s signature, another $150 million would go into the state’s Strategic Outreach and Attraction Reserve Fund, a business incentive program designed to help the state lure new jobs and companies. 

The legislation includes an additional $150 million for the Legislature and State Budget Office to create a new gap financing program to help preserve and build affordable housing, and $25 million for a new Water Prevention Shutoff Fund.

There's also $3.17 million for the Michigan Independent Redistricting Commission, whose members finished their primary work in late 2021 but recently sued the state for additional funding as they fight at least one active lawsuit over political maps they produced.

Additionally, the proposed spending bill directs $22 million to the city of Walker in Kent County to improve a bridge and $8 million for redevelopment of Lexington Harbor in Sanilac County. 

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