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Michigan Republicans to Whitmer: We dare you to veto income tax cuts

Gov. Gretchen Whitmer
Gov. Gretchen Whitmer has warned that significant cuts in Michigan’s income tax rates could prompt service cuts to roads or police. (Shutterstock)

LANSING – Michigan’s Republican-led Senate on Thursday gave final approval to a $2.5 billion plan that would cut individual income tax, expand senior relief and create a child tax credit but force unspecified spending cuts in future years.

The election-year proposal now heads to Gov. Gretchen Whitmer, putting pressure on the first-term Democrat to sign a plan that is considerably larger than her $757 million tax cut proposal.

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Whitmer’s office says she’s “all-in on cutting taxes for seniors and working families” but the governor is expected to veto a GOP plan she calls “fiscally irresponsible” and “unsustainable”given non-partisan projections it could force more than $1.8 billion in annual spending cuts despite one-time federal stimulus funds.

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Republicans contend the state budget is large enough to allow for tax cuts. One-time stimulus funds helped grow the Michigan government budget from $58 billion in 2019 to $63 billion in 2021.

“Every Michigander needs help at this time of record-high inflation, supply chain shortages and communities struggling to recover from shutdowns,” said sponsoring Sen. Aric Nesbitt, R-Lawton. “No Michigander has been immune from the state of our economy and no Michiganer should be left behind when it comes to providing substantive tax relief.”

The GOP plan brokered by House and Senate leaders would reduce Michigan’s individual income tax rate from 4.25 percent to 3.9 percent. That would cut taxes for millions of Michiganders – everyone except those who don’t earn enough to pay tax – but high earners who pay the most tax would save the most money. 

A family of four with an income of $63,829 — the median for Michigan in 2020 — would save $153 next year, for instance. A family of four with $200,000 in earnings — which would put it in the top 5 percent of earners — would save $630.

The GOP plan, approved by the Senate in a 22-15 party-line vote, would also create a $500 per-child tax credit for families. And it would double a senior income tax exemption from $20,000 to $40,000 for an individual while lowering the qualifying age from 67 to 62 years old.

As part of a deal with the House GOP, Senate Republicans agreed to drop a $490 million corporate tax cut from the package now heading to Whitmer. But the upper chamber approved separate standalone legislation on Thursday that would cut the corporate rate from 6 percent to 3.9 percent, sending that proposal back to the House for additional consideration. 

Michigan is flush with roughly $7 billion in federal stimulus funds and another $7 billion surplus, but federal rules generally prohibit states from using the stimulus money to pay for tax cuts. 

To comply with the federal law, the non-partisan Senate Fiscal Agency projects that Michigan would have to generate new revenue or cut spending by $4.1 billion across the next three fiscal years in order to pay for the GOP tax cut. 

“This legislation will create a massive, ongoing, multi-billion-dollar budget deficit” that could force future tax cuts or painful cuts to public schools, road repairs, and police and fire protection,” Whitmer warned Thursday in a letter to legislative leaders. 

“It is my sincere hope that we can now come together to negotiate a compromise that fully considers a budget alongside any tax policy decisions while putting the people of Michigan first,” Whitmer continued, requesting a meeting next week.

Senate Majority Leader Mike Shirkey, R-Clarklake, criticized the governor's comments.

“A sure sign someone has been in government too long is if they’re trying to convince you the bureaucracy can’t afford a $2.5 billion tax cut when it has an $8 billion surplus.” he said in a statement. “The governor’s veto threat is a slap in the face of Michigan residents struggling to fill their gas tanks and pay for groceries at a time of record inflation.”

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Whitmer's plan would expand the Earned Income Tax Credit for low and middle-income workers from 6 percent to 20 percent of the federal version, reversing a 2012 cut to the state-level program. The administration estimates 738,400 households would benefit, with the average credit increasing by more than $300 a year

As Whitmer and GOP leaders both eye tax cuts, a business coalition is urging an even larger EITC expansion: A bill from Sen. Wayne Schmidt, R-Traverse City, would increase the credit to 30 percent of the federal level over four years, eventually boosting the credit by an average of $460. 

The credit "is explicitly designed to encourage greater participation in the workforce because it is only available to families that work," local chambers of commerce from Detroit, Grand Rapids, Ann Arbor, Flint and other regions wrote in a recent letter to Whitmer and GOP leaders.

"In a time when many employers are having difficulty filling available jobs, the EITC has a proven track record of pulling people into the workforce."

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