Michigan State Capitol | Susan J. Demas
The GOP-led state Senate on Thursday gave its final stamp of approval on a sweeping tax cut plan that now heads to Gov. Gretchen Whitmer – who is expected to veto the legislation and on Thursday called the proposal “fiscally irresponsible” and “unsustainable.”
“According to the nonpartisan House Fiscal Agency (HFA) analysis, this legislation will create a massive, ongoing, multi-billion-dollar budget deficit,” Whitmer wrote in a March 3 letter to Republican leadership in the state Senate and House, which passed the tax cut plan earlier this week.
“This would force the legislature to either raise taxes on Michigan families, or make deep and painful cuts to public schools, road repairs, and police and fire protection,” Whitmer wrote. “It would mean drastically reducing resources to invest in important priorities like increased access to behavioral health, retaining police and firefighters, veterans, dams, removing lead service lines, and so much more.”
Senate Bill 768, sponsored by Sen. Aric Nesbitt (R-Lawton), would slash Michigan’s individual income tax rate from 4.25 percent to 3.9 percent. It would reduce revenue to the state’s General Fund and School Aid Fund by between $1.77 billion and $1.8 billion during the 2021-2022 Fiscal Year, between $2.48 billion and $2.54 billion the following fiscal year, and between $2.5 billion and $2.6 billion in 2023-2024, according to an analysis from the nonpartisan Senate Fiscal Agency.
The state’s highest earners would save the greatest amount under the plan. According to data requested by the Michigan League for Public Policy (MLPP) from the Institute on Taxation and Economic Policy, a Washington D.C.-based nonprofit, the legislation would translate to an average tax cut of $12 for those earning less than $23,000 annually, $92 for those making between $41,000 and $70,000, and $4,901 for those earning $539,000 or more. The analysis also found that 69 percent of tax cuts will go to the wealthiest 20 percent of earners, while 31 percent of the benefits will go to the bottom 80 percent.
Republicans lauded the plan as “historic,” touting the fact that it would create a $500 tax credit for each child under the age of 19 and would increase the tax exemption for seniors up to $40,000 for individuals and $80,000 for couples. It would also lower the qualifying age threshold for a tax exemption from 67 to 62.
“My top priority with this legislation was to reduce the burden on Michigan’s taxpayers – in real and meaningful ways for people all across our state – in order to help them at home and help improve our shared economy,” Nesbitt said in a prepared statement.
House and Senate Republicans carved a $490 million corporate tax cut from the legislation, but the Senate on Thursday approved a separate bill, Senate Bill 392, which would decrease the corporate tax rate from 6 percent to 3.9 percent. That now heads to the House.
Whitmer has proposed her own set of tax cuts in her $74 billion 2023 budget plan, which includes $757 million in tax cuts. The governor’s proposal encompasses funding increases for education, infrastructure and ore and includes tax cut cuts for seniors and workers by repealing the tax on pension income and beefing up the Earned Income Tax Credit that is designed to benefit working families.
A long list of policy and advocacy groups slammed the legislation as legislation that would primarily benefit the state’s wealthiest residents and dramatically reduce funding for schools, transportation infrastructure, health care, and more.
Numerous organizations, including the nonpartisan Michigan League for Public Policy, have pointed out that while the state has billions of dollars in federal stimulus funds, federal law does not allow states to use the stimulus funds to pay for tax cuts. The Senate Fiscal Agency reported the state will face about $4.1 billion in revenue reductions over the next three fiscal years that “would have to be offset” and could not be paid for using the federal stimulus funds.
“After previous bad and imbalanced tax breaks, tight to downright brutal budgets, and years of disinvestment, not to mention an ongoing pandemic that is worsening existing deep disparities, current Michigan policymakers have an opportunity to make historic investments and lay the foundation for a brighter future for everyone,” said Rachel Richards, Fiscal Policy Director for the Michigan League for Public Policy. “But our state is at risk of squandering that opportunity instead of seizing it. Passing a widespread unsustainable tax cut would take billions of dollars away from the state budget immediately and make it harder to invest in Michigan’s future.”
A coalition of 17 organizations representing labor, progressive, environmental, and educational organizations sent a letter to Whitmer Thursday urging her to veto the legislation. Signers included AFT Michigan, Clean Water Action, Detroit Action, Michigan AFL-CIO, Michigan Faith in Action, and others.
“Wealthy Michiganders are already paying far less than their fair share,” said Eileen Hayes, executive director of Michigan Faith in Action, a statewide organization of faith communities. “If you make $500,000 a year in Michigan today, you’re contributing less to our public services than you would if you lived in 39 other states. We should be talking about raising taxes on the wealthy, not cutting them.”
The Republican tax cut plan would result in “drastic budget shortfalls for students and educators,” according to teacher union leaders.
“Rather than giving Michigan’s wealthiest corporations and individuals a $2.5 billion tax break they don’t need, our state’s leaders should work together to repeal Michigan’s unfair retirement tax on seniors, expand the Earned Income Tax Credit for working families, and provide much-needed investments in schools to address student mental health and the educator shortage,” American Federation of Teachers (AFT) Michigan President David Hecker and Michigan Education Association President Paula Herbart said in a prepared statement.
More conservative organizations backed the legislation.
The conservative Mackinac Center for Public Policy, which has repeatedly called on the governor and lawmakers to lower the personal income and corporate income tax rate, applauded Senate Bill 768.
“Our research has shown that returning the personal income tax rate to 3.9% would create 15,000 new jobs for Michiganders in its first year alone,” the Mackinac Center for Public Policy said in a prepared statement.
Democratic Gov. Jennifer Granholm signed a tax increase from 3.9 percent to 4.35 percent in 2007, and Republican Gov. Rick Snyder signed a slight decrease to that, from 4.35 percent to 4.25 percent, in 2012.
The Michigan Chamber of Commerce also backed the tax cut proposal.
“The Michigan Chamber of Commerce supports your efforts to provide tax relief to Michigan taxpayers,” the chamber said in its testimony to the Senate Fiscal Committee earlier this year. “However, to keep the promises made under this bill, both in the short- and long-term, the Legislature must continue to make smart budgeting decisions in the appropriations process, including in the upcoming fiscal year.”
Whitmer noted in her March 3 letter to GOP leadership that while she “will not support legislation that forces cuts to schools, road repairs and public safety,” she wants to work with Republican lawmakers on a compromise “that fully considers a budget alongside any tax policy decisions while putting the people of Michigan first.”
She wrote that state Budget Director Chris Harkins is “prepared to meet” with Republican lawmakers “at once to continue this important work.”
Advance reporter Ken Coleman contributed to this article
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