LANSING — Republicans who control the Michigan Legislature agreed Tuesday on a plan to cut taxes by $2.5 billion annually, advancing a bill that will be vetoed because there is no deal with Democratic Gov. Gretchen Whitmer.
The House voted 62-42 to cut the state income tax from 4.25% to 3.9%, lower the age for filers to exempt up to $20,000 individually or $40,000 jointly to 62 from 67, allow an additional exemption for retirement income not covered by the standard senior deduction and create a $500 per-child tax credit. The Senate, which passed tax cuts two weeks ago, will concur with House changes as soon as Wednesday and send the legislation to the governor.
Whitmer has proposed a more targeted, less sweeping $757 million plan to reverse parts of an unpopular decade-old law by fully restoring the earned income tax credit for lower-income workers and gradually reinstating pension tax exemptions.
The House also voted 71-33 to spend $1.5 billion of a $7 billion state surplus to shore up pension systems — $1.15 billion for municipalities and $350 million for the state police. The bill, which was sent to the Senate for future consideration, is not part of the Republican agreement.
The sponsor of the tax cuts said the average family of four would save more than $1,140 a year.
“This is real relief for all Michigan families, workers and seniors,” said Rep. Matt Hall, a Marshall Republican who chairs the House Tax Policy Committee.
“Our state’s coffers are flush with cash. We have more money than we ever dreamed of. We can afford to do a tax cut,” said Republican Rep. Steve Johnson of Wayland, pointing to a multibillion-dollar surplus and the effects of high inflation on gas, groceries and other consumer goods.
Many Democrats opposed the bill, calling it fiscally irresponsible while noting such a large tax cut could put at risk $3 billion, or more than half, of federal discretionary pandemic funding the Legislature and governor have not yet allocated. The income tax cut, they said, would primarily benefit the wealthy because Michigan’s tax is flat and not graduated.
“We are making a structural change that will gut our state government for years, for decades, for generations to come,” said Rep. Yousef Rabhi, an Ann Arbor Democrat. “It will hamper our ability to respond in the face of a recession. … There is no more fiscally irresponsible thing to do than what is being proposed here today.”
Ten Democrats joined 52 Republicans in approving the legislation. Three Republicans and 39 Democrats opposed it.
The House Fiscal Agency projects the legislation would reduce revenues by $3.1 billion in the next fiscal year and $2.4 billion in the 2023-24 budget year. Republicans amended it Tuesday by incorporating the Senate’s proposed $500 child tax credit. Michigan once had a $600 exemption per child, but it was removed as part of the Republican-written 2011 tax overhaul that slashed business taxes and effectively raised taxes on individuals.
Whitmer said her proposal to repeal the “retirement tax” would save 500,000 households an average of $1,000 annually if it is phased in by 2025. She said Tuesday it is time to negotiate a bipartisan budget deal that includes tax cuts for seniors and working families.
“The legislation that is making its way through the legislature is unsustainable and would either result in tax hikes later on for Michiganders or would make some of the largest funding cuts to schools, roads and police protection for communities,” spokesperson Bobby Leddy said.