The plan would also allow seniors age 62 and older to deduct up to $40,000 annually from their income taxes, or $80,000 for joint claimants.
Proponents of the plan — such as House Tax Policy Committee Chair Matt Hall, R-Marshall, and House Appropriations Committee Chair Thomas Albert, R-Lowell — said the plan prioritizes working families in Michigan.
“Everyone benefits from this plan. All workers, all seniors, all families,” Hall told reporters Thursday after presenting the proposal at a joint hearing between the House Appropriations and Tax Policy Committees.
However, critics argue that the plan would mean more tax breaks for wealthier Michiganders than for low- and middle-income workers. Alex Rossman, spokesman for the Michigan League of Public Policy, which opposes the proposal, said in a Press Release Thursday.
Under the House plan, a person earning $20,000 annually would save $52.85 in state taxes, while someone earning $400,000 annually would save $1,382.85.
“Legislative Republicans are pushing for sweeping, across-the-board tax cuts that primarily benefit the wealthiest residents and businesses while significantly decimating our current and future state budgets,” Monique Stanton, president and CEO of the Michigan League of Public Policy, said in a Explanation.
The House GOP plan is the latest of several competing proposals as Lansing tax cut talks heat up. Michigan Senate Republicans have introduced a plan to offer tax breaks to corporations, individual workers and seniors. Democratic Gov. Gretchen Whitmer, who criticized the Senate plan as “unsustainable,” has promised to eliminate the state’s “retirement tax” — a tiered system that taxes retirement income based on the taxpayer’s date of birth — and to increase income tax credit for low-income earners .
The state’s final budget is likely to change from previous proposals from the House, Senate and the Governor’s Office as Republican leaders in the Legislature and the Democratic governor negotiate a settlement.
“Governor Whitmer has always said that she will work with anyone who wants to work together to solve problems and get things done,” Whitmer spokesman Bobby Leddy said in an email.
The plans come at a time when the state is trying to spend $7 billion in excess revenue and another $7 billion in federal stimulus funds. However, the stimulus money cannot be used to fund tax cuts under federal regulations.
The House tax cut would result in an estimated $2.4 billion in revenue loss in fiscal 2023 and $1.7 billion in the following year an analysis of the home finance agency. In this regard, the state collected $31.4 billion in taxes and fees in fiscal 2020, including $10 billion in income taxes comprehensive financial report of the country.
Albert and Hall said they may consider budget cuts to close the revenue gap but are confident their plan is sustainable.
“Where there’s a will, there’s a way,” Albert told reporters. “We have so many options on the table. … We’re not operating at 100 percent efficiency, so yes, there are areas of the budget that we can (cut) comfortably.
“There are many options on the table,” Albert said. “Nobody will believe that we cannot find the money.”
However, neither Albert nor Hall identified areas of the state budget that they think could be cut.
Opponents say the price of the house bill is too high.
“These costs require the state to either cut public services we all depend on or risk losing vital federal aid provided under the American Rescue Plan Act, dollars earmarked to help struggling workers, To help families and businesses recover from the economic impact of the pandemic.” Rossman said in a statement on behalf of the Michigan League of Public Policy.
In comparison, the Senate plan would cost about $2 billion a year. Whitmer’s plan to phase out the pension tax would cost the state $13 million in the current fiscal year and $495 million annually through fiscal 2025. An increase in the Earned Income Tax Credit would result in a $262 million drop in revenue per year.
Hall said he instituted his own plan because the other proposals would benefit specific groups of people rather than all Michiganders.
“We’ve seen benefits for companies, we’ve seen certain people benefited. Pick a few, but not all,” he told reporters.
House Republicans’ plan includes the same individual income tax cut proposed by Senate Republicans — cutting the rate from 4.25 percent to 3.9 percent.
Hall, who is sponsoring the legislation, cited the state’s economic health on Thursday as a reason to cut the tax rate back to 3.9 percent — before former Democratic Gov. Jennifer Granholm raised it to 4.35 percent in 2007 to maintain a $2 deficit billion dollars to close. Granholm promised to bring the interest rate back to 3.9 percent within a few years, but her successor, Republican Rick Snyder, froze the rate to 4.25 percent today.
“Now we’re sitting on more money than ever before,” Hall said Thursday. “If we can’t bring it back to 3.9 now and give people tax breaks, they never will.”
Hall’s proposal would also provide income tax relief for seniors aged 62 and over, expanding and increasing a tax exemption currently limited to those aged 67 and over. A working senior in Michigan could deduct $20,000 from their taxable income, while a retiree might deduct $40,000. Those numbers double when seniors apply together, meaning a retired couple aged 62 and over earning $80,000 a year would collect all income tax-free.
James Hohman, director of fiscal policy at the Mackinac Center, praised the House tax cut plan as a way to “make Michigan more competitive, encourage small business development and … help the state attract more residents.”
Democratic lawmakers on Thursday raised concerns that the plan would unfairly benefit wealthier taxpayers. Rep. Tenisha Yancey, D-Harper Woods, tried unsuccessfully to bring Whitmer’s proposals before the joint committee Thursday.
“How much do you think the top 1 percent is actually struggling?” Yancey Hall asked during Thursday’s hearing, citing the Michigan League of Public Policy study. “Is it fair?”
Hall insisted his plan would help all Michiganders.
“People want relief, all people,” he said. “There are no gimmicks here.”
Though the plan will cost the state about $2 billion in revenue a year, Hall and Albert said they weren’t concerned about the long-term tax implications of their proposal, saying it would be funded entirely from the state’s own revenues.
Albert said he was willing to cut government spending to fund the tax cut, but didn’t specify where he sees stale funding.