House passes EITC and pension tax bill, Senate Republicans punt action to next week

By: - February 10, 2023 10:06 am

Michigan Capitol | Susan J. Demas

After a tumultuous day on the House floor, the chamber on Thursday approved Democrats’ tax relief plan by a slim margin. 

The bill, which has been endorsed by Gov. Gretchen Whitmer, won’t be heading to her desk yet, however. In an unusual move, Senate Republicans maneuvered to adjourn Thursday afternoon before the upper chamber was able to cast votes.

Democrats have moved fast on the tax relief plan since the new session started last month. Whitmer and Democratic leaders negotiated a final deal, which was announced last week.

Dems propose $180 ‘inflation relief’ checks, increasing EITC, repealing retirement tax

House Bill 4001, introduced by House Appropriations Chair Angela Witwer (D-Delta Twp.), aims to provide $180 “inflation relief” checks, boost the state Earned Income Tax Credit (EITC) from 6% to 30% and gradually repeal Michigan’s so-called pension tax.

“The conference report before you reflects a broader plan to deliver much needed relief to Michiganders,” said Rep. Samantha Steckloff (D-Farmington Hills) on the floor Thursday. “Repealing the retirement tax, increasing tax credits for working families and rebates to Michiganders provides struggling families with the relief they need right now.”

Republican former Gov. Rick Snyder signed legislation cutting the EITC in 2011 from 20% to 6% and enacted a pension tax to balance the budget as part of his tax reform plan that cut business taxes by $2 billion annually.

HB 4001 also allows funds generated from the Corporate Income Tax (CIT) — the state’s primary business tax — to be moved to other reserves, if the CIT exceeds $1.2 billion for Fiscal Year (FY) 2023 through FY 2025. That includes increasing the Michigan Tax Rebate Fund to $800 million in Fiscal Year 2022, $500 million to the Strategic Outreach and Attraction Reserve (SOAR) fund for economic development, $50 million to the Michigan Housing and Community Development Fund and $50 million into a Revitalization and Placemaking Fund.

Under this tax package, the state’s 4.25% tax on retirement income would be gradually rolled back until 2026, when the tiered system would be eliminated altogether. At that point, all taxpayers would be able to claim the maximum deduction of retirement and pension benefits.

Here’s how it would work:

  • Retired Michiganders born between 1945 and 1959 could deduct up to 25% of the maximum amount of retirement or pension benefits in the 2023 tax year
  • It would be 50% for those born between 1945 and 1963 in the 2024 tax year
  • It would be 75% for those born between 1945 and 1967 in the 2025 tax year
  • Retirement pensions no longer would be taxed in the 2026 tax year

The funds for the $180 inflation relief checks would come from the FY 2022 CIT revenue and would be moved into a new Michigan Taxpayer Rebate Fund. 

Last week, the Democratic-led Senate gutted House Bill 4001 and sent it back to the House for a vote, where it failed on a 53-56 vote. From there it was sent to the conference committee. On Wednesday, the conference committee met and approved the report along party lines, with a 4-2 vote.

On Thursday, HB 4001 passed through the House on a 56-53 vote. State Rep. Dylan Wegela (D-Garden City) voted against the bill and Rep. Mike Mueller (R-Linden) broke away from Republicans and voted for the bill. 

Wegela said he supported the Democrats’ plan for the retirement tax repeal and the EITC increase, but voted against the bill because of the “corporate subsidy” component. 

Because these bills have been lumped together, I have been forced to vote against these desperately needed relief measures that I strongly believe in. I’ve said it before and will continue to say it: corporate handouts don’t work,” Wegela said in a statement.

Most Republicans slammed the bill.

State Rep. Andrew Beeler (R-Fort Gratiot), Jan. 11, 2023 | Laina G. Stebbins

“The governor’s latest smoke-and-mirrors proposal is just another attempt to misdirect the people and small businesses of Michigan as she puts permanent income tax relief on the chopping block,” said Rep. Andrew Beeler, (R-Port Huron). “Michiganders need relief now and ongoing savings in the future. One-time checks are a poor excuse for levying a tax hike on working families and local businesses while creating a huge, unaccountable corporate slush fund. The people of Michigan should see through Gov. Whitmer’s attempt to offer them a temporary bribe to cover up a disastrous tax hike.”

Republicans announced their own set of plans earlier this year. House Bills 4008 and 4009 aim to increase the EITC to 20% and ease the pension tax by allowing single filers 67 years old and older to deduct $40,000 in income or $80,000 for joint filers. Those between the ages of 62 and 66 could deduct $20,000 in retirement individually or $40,000 jointly.

After hours of waiting around on the House floor, Democrats put HB 4001 up for a vote before lawmakers were able to give floor speeches on the bill — which caused a ruckus on the floor as Republicans pushed back, calling for “a more transparent process.”

Watching House Republicans vote against a bill that would save working families $3,000 a year is a disservice to the people they represent. It’s time for them to do their job and provide financial relief for those who are barely making ends meet,” Steckloff tweeted Thursday after the vote.

After the bill passed the House, Senate Republicans moved to adjourn while Senate Democrats were caucusing and the full chamber was in recess — pushing further action on the bill to next week. 

“Democrats took it upon themselves to carry out the bidding of Gov. Whitmer to raise taxes on every Michigander without committee hearings, without debate, without negotiations, and without Republican input,” said Sen. Aric Nesbitt (R-Porter Twp.). “To make matters worse, the disrespect that was shown to House Republicans this afternoon by locking them in and denying the opportunity to debate such a consequential vote was an insult to this institution. It is my hope that we can come back, hit the reset button, and legislate through a more transparent process.”

Senate Majority Leader Winnie Brinks (D-Grand Rapids) said Thursday there would be a response to the GOP’s procedural maneuver.

“We’ve heard Republicans demand inflation relief and speak out against the retirement tax time and time again, yet when it comes time to act, they choose to play political games with Michigan families,” said Michigan Democratic Party Chair Lavora Barnes. “… We urge Minority Leader Hall and Republicans in the legislature to think twice before rejecting this historic piece of legislation. Let’s be clear, if they vote no, they should be prepared to explain to every Michigander why they’re going back on their word.”


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Allison R. Donahue
Allison R. Donahue

Allison R. Donahue is a former Michigan Advance reporter who covered education, women's issues and LGBTQ issues. Previously, she was a suburbs reporter at the St. Cloud Times in St. Cloud, Minn., covering local education and government. As a graduate of Grand Valley State University, she has previous experience as a freelance researcher for USA Today and an intern with WOOD TV-8.