Whitmer signs tax relief bill; law increases EITC, repeals pension tax
Gov. Gretchen Whitmer joins Democratic leaders to sign a tax relief bill at the state Capitol’s Heritage Hall on March 7, 2023. | Whitmer office photo
Gov. Gretchen Whitmer on Tuesday signed House Bill 4001 into law, which boosts a tax credit for low-wage workers and rolls back the state’s retirement tax.
The legislation, coined the “Lowering MI Costs” plan by Democratic lawmakers, overhauls tax changes made by then-Gov. Rick Snyder, a Republican, in 2011. The new law is expected to benefit hundreds of thousands of Michiganders, including seniors and those who are struggling in the face of inflation, Whitmer said.
“Right now, families are facing the pinch and having tough conversations about how to make ends meet,” said Whitmer, who gathered with Democratic leaders for a bill signing ceremony at the Michigan Capitol’s Heritage Hall. “Today, I am proud to sign a $1 billion tax cut for seniors and working families.”
The new law increases the Earned Income Tax Credit (EITC) — which lawmakers interchangeably call the Working Families Tax Credit — from 6% to 30% of the federal level, retroactive to 2022. This means qualifying Michiganders could claim a credit worth 30% of the federal amount on their taxes.
This increase, which comes after Snyder in 2011 cut the EITC from 20% to 6%, is expected to benefit approximately 700,000 Michiganders annually earning about $57,000 or less, according to the Whitmer administration. Those individuals would see an additional $600 per year from the EITC boost, according to an analysis from the Michigan League for Public Policy.
The law also phases out the state’s retirement tax over four years — a move that follows Snyder in 2011 signing highly controversial legislation establishing Michigan’s retirement tax that applies a 4.25% income tax on pensions. According to Whitmer’s office, this repeal could save about 500,000 households approximately $1,000 a year.
“Getting this done will help people pay the bills, put food on the table, and afford essentials like groceries and school supplies,” Whitmer said. “It will ensure seniors can keep more of what they’ve earned over a lifetime of hard work and put money back in the pockets of 700,000 working families.”
While Democrats have long wanted to overturn the changes made by Snyder and the Republican-controlled Legislature in 2011, they are now able to do so because November’s election ushered in Democratic control of the House, Senate and governorship for the first time in 40 years.
“Today, we’re undoing the unfair, decade-long budget experiment that required some of our most vulnerable to sacrifice even more,” Senate Majority Leader Winnie Brinks (D-Grand Rapids) said.
State Rep. Angela Witmer (D-Delta Twp.), who introduced House Bill 4001, noted she has introduced a bill to repeal the retirement tax several times.
“I’ve held office in the House for three terms, and each term, I introduced a bill to repeal the retirement tax: I’m so happy for Michiganders that we finally got it across the finish line,” Witwer said.
Democratic lawmakers wanted the plan to include $180 “inflation relief checks” for Michigan tax filers, but those will not be issued following Republican legislators blocking efforts to do so. The legislation that the governor signed on Tuesday includes calls for the $180 checks, but only if the law took effect by April 18. Democrats were unable to enlist enough Republican support for that to happen because the state would have used about $800 million from the state’s General Fund to issue the checks, and that spending could have averted an automatic income tax cut due to a 2015 law that ties the income tax, currently 4.25%, to the state’s General Fund. Some legal experts have said that the Legislature overstepped its authority with that 2015 legislation.
Because of the state’s soaring revenue last year, that income tax may drop to 4.05% — something which Republican lawmakers want to see. Michigan currently has an approximately $9.2 billion budget surplus, including a $5.1 billion surplus in the General Fund and a $4.1 billion surplus in the School Aid Fund. About $5.8 billion of that is for one-time use.
“Michiganders are tired of the rising costs that have burdened their budgets, and they need the long-lasting relief that is coming to them,” House Minority Leader Matt Hall (R-Richland Twp.) said Tuesday of the income tax cut.
The new law also allows the state to use up to $500 million a year in corporate income taxes to fund the Strategic Outreach and Attraction Reserve Fund (SOAR), a program that Michigan uses to attract high-profile businesses to the state. That may only be done if corporate income tax revenue exceeds $1.2 billion. The law stipulates this SOAR funding only pertains to fiscal years 2023, 2024 and 2025.
Under the new law, the state will annually put $50 million of the corporate income tax revenue in the Michigan House and Community Development Fund and another $50 million in the Revitalization and Placemaking Fund.
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