Tax deal clears Michigan Senate, but inflation checks remain in limbo

• Bill that includes $180 checks, tax cuts for low-income residents and seniors and economic development funds passes Senate
• Republicans object because plan would block an income tax rollback trigger, did not vote to give legislation immediate effect
• Plan passed Senate along party lines, but hasn’t been sent to governor’s desk

March 1: Michigan lawmakers send Whitmer tax cuts; $180 payments are dead

LANSING — Michigan Senate Democrats pushed through a wide-ranging tax plan to reduce taxes for lower-income workers and retirees and funnel more money into business incentives.

But staunch Republican opposition means the plan is still in limbo, as a key piece of the plan — a $180 onetime check for all Michigan tax filers — would only take effect if two-thirds of the Legislature vote to let it take effect immediately once it’s signed into law.  

As written, the checks would go to state filers if the bill is signed and takes effect by April 18. That means at least six Senate Republicans would need to support it.

Related:

• Michigan inflation relief checks: Why GOP is fighting Whitmer rebate plan
• Michigan inflation relief checks may be in jeopardy, even as tax cut passes
• Michigan $180 inflation relief checks 2023: what to know about Whitmer's plan

On Thursday, senators voted 20-17 to approve the plan, and a subsequent roll call vote on whether it’d be granted immediate effect split along the same party lines. 

For now, the legislation remains in the Senate, as a subsequent motion to reconsider the immediate effect vote remains outstanding. 

House Bill 4001 would phase out taxes on public and private pensions and expand the state’s Earned Income Tax Credit to 30 percent of the federal rate, up from 6 percent.

The tax expansion would save about 700,000 families some $600 per year, while 500,000 seniors would save an average of $1,000 from the pension tax.

Both of those tax cuts have bipartisan support. But provisions to use $800 million to fund onetime $180 checks and spend $600 million on economic development are far more controversial.

The state’s income tax rate was set to drop to 4.04 percent from 4.25 percent, which would have saved filers who make $100,000 about $210 every year and those who make $30,000 about $60 per year. 

The Democrats used some accounting maneuvers to work around the rollback, redirecting $800 million in corporate income taxes to avoid it going into the general fund and triggering a rate reduction.  The plan doesn’t eliminate the trigger law, but it makes it less likely to be used in future years.

Under the legislation, if corporate income tax collections exceed $1.2 billion in any given year, the state would redirect up to $600 million into various economic development efforts, including $500 million for a business incentive program called the Strategic Outreach and Attraction Reserve Fund. 

Democratic Gov. Gretchen Whitmer has touted annual deposits as a way to sustain a program she has credited with helping the state secure jobs from "transformational" developments like a General Motors Co. expansion in Lansing, Ford electric vehicle production in metro Detroit and a Hemlock Semiconductor investment in Saginaw County. 

Republicans are furious the deal would avert an expected income tax cut trigger under a Snyder-era law tying the income tax to state general fund revenue growth.

Senate Minority Leader Aric Nesbitt, R-Lawton, called the plan a “bait and switch,” noting Democrats would have had broad bipartisan support had they focused on expanding the Earned Income Tax Credit and tax relief for seniors. 

“That could have been done in a bipartisan way and signed into law weeks ago,” he said. “The governor and the Democratic majority seem intent on stopping a tax cut for all working families, and all seniors, everybody that pays taxes in the state of Michigan.”

Democrats who support the plan argue it would provide wide-ranging, immediate tax relief to the state’s neediest residents and that an income tax cut would benefit Michigan’s wealthiest residents most. 

“We've been trying to give those impacted by inflation the most immediate relief,” Sen. Mallory McMorrow, D-Royal Oak, said. “It's been fascinating to hear our colleagues on the other side of the aisle continuing to point out the immediacy of the relief needed while simultaneously fighting for a tax cut for the wealthiest Michiganders that would give crumbs to those who need it most.”

Michigan Democrats, who hold both chambers of the state Legislature for the first time in decades, tried to push the tax package through last week, but they were stymied by political maneuvering from Republicans.

On Feb. 9, Democrats passed the measure in the House when they opened the voting board for a matter of seconds and then closed it once the minimum number of aye votes were in, leaving nay votes to vote by voice. The message was then sent to the Senate that afternoon, but Republicans were ready. 

When Democrats went into caucus, Republican Sen. Joe Bellino, R-Monroe, adjourned the Senate and went home, effectively delaying the vote.

Democrats on Thursday adopted a resolution eliminating the leadership role Bellino held that allowed him to adjourn under Senate rules over Republican objections, as well as stripping him of some committee assignments.

Democrats are also mulling the possibility of amending the Senate’s immediate effect rules.