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Published in Economic Development
Gov. Gretchen Whitmer during her State of the State address on Jan. 26. Gov. Gretchen Whitmer during her State of the State address on Jan. 26. COURTESY PHOTO

Tax cut negotiations on deck between Whitmer, Republicans

BY Sunday, January 30, 2022 02:00pm

Competing proposals from Gov. Gretchen Whitmer and Republicans who control the Legislature put tax cuts on the election-year agenda in Lansing.

The Democratic governor wants to cut the state’s “retirement tax” on public pensions, restore deductions on private retirement income, and more than triple the earned income tax credit. Republicans, meanwhile, are pushing ahead with cutting Michigan’s individual and corporate income tax rates.

The tax-cut proposals come after the state recorded a $2.69 billion budget surplus for the 2021 fiscal year that ended Sept. 30, and as estimates forecast a $1.44 billion surplus in the present 2022 fiscal year. The state also has billions more in one-time money from federal pandemic relief and infrastructure funding.

Andy Johnston, vice president of government affairs at the Grand Rapids Area Chamber of Commerce, expects that the governor and Legislature will attempt to work out some kind of tax cut agreement. Given the budget surpluses, “there is going to be a desire to put that money back in people’s pockets,” Johnston said.

“There is definitely going to be a discussion going forward,” he said. “I do think this is going to be something that the Legislature and the governor are going to negotiate.”

In her annual State of the State address last week, Whitmer proposed repealing the state’s “retirement tax” on income from public pensions and restoring deductions for 401(k)s and individual retirement accounts. Phasing out the tax by the end of 2024 would save an estimated 500,000 households in the state $1,000 a year, she said.

Repealing the tax “will help real people,” said Whitmer, adding that she is “ready to work across the aisle to roll back the retirement tax.”

“For our seniors, let’s work together to repeal the retirement tax. I first called to repeal this tax back in 2019. It’s time to get it done,” she said. “Repealing the retirement tax will help Michiganders who worked hard and played by the rules. It’s the right thing to do.”

A proposed increase in the earned income tax credit (EITC) from 6 percent to 20 percent of the federal tax credit would create an average $3,000 tax refund for 730,000 people in Michigan, she said. The EITC was slashed in 2012 when the state’s tax code was rewritten under then-Gov. Rick Snyder.

Republicans take action

Republicans on the Senate Finance Committee have different ideas and last week proceeded with their own proposal. The committee on a 5-2 party-line vote sent to the full Senate a bill to reduce individual and corporate tax rates and provide a $500 tax credit for dependents under 19 years old.

Under Senate Bill 768, the state’s individual tax rate would drop from the present 4.2 percent to 3.9 percent. The state’s corporate income tax would fall from 6 percent to 3.9 percent.

S.B. 768 would cut state revenues by roughly $2.34 billion in the state’s 2022-23 fiscal year that starts Oct. 1, and by roughly $2.39 billion in FY 2023-24, according to an analysis by the Senate Fiscal Agency, which noted the “revenue loss would increase in later years as the economy continues to grow.”

“We need to use this opportunity to provide significant, real, across-the-board tax relief for Michigan’s hard-working families and job creators,” bill sponsor Sen. Aric Nesbitt, R-Lawton, said during testimony to the Senate Finance Committee.

Sen. Jim Runestad, chairman of the Senate Finance Committee, said in a statement that the individual income tax was increased in 2007 from 3.9 percent to 4.35 percent, and “a promise was made to roll it back to 3.9 percent by 2015,” which never happened.

“It’s past time for the governor and legislative leaders to come together and provide real and meaningful relief to the hardworking taxpayers of this state. Families and businesses can spend their dollars far better and wiser than the government can,” said Runestad, R-White Lake.

The GOP bill gained the support of business groups across the state, including from the Grand Rapids Chamber, Michigan Chamber of Commerce, Small Business Association of Michigan, Michigan Retailers Association, the Michigan chapter of the National Federation of Independent Businesses, and the Associated Builders and Contractors of Michigan.

Surplus climate

Michigan’s current surpluses provide political leaders an opportunity to cut taxes, although Michigan Chamber of Commerce President and CEO Jim Holcomb hopes the governor and legislators can craft a plan that’s sustainable.

“Reducing that tax burden is important, but deeply as important is what we’ve said in our support (of the corporate income tax cut). Let’s debate it (and) is it doable, but also: What’s the long-term impact? Let’s make sure that we don’t cut a tax now to come back in two or three or four years later to only raise taxes again because it’s that instability that will only cause problems,” Holcomb said. “Our overriding goal here is to give dollars back to taxpayers wherever we can, but let’s do it smartly. Let’s make sure we aren’t creating long-term debt burdens that are going to hinder budgets in the future.”

Holcomb said the quick bipartisan work between Whitmer and lawmakers late last year on a new $1 billion economic development fund to lure major manufacturers could help set the tone for tax cut negotiations, which he hopes starts immediately. He’s confident the two sides “can come together and find a reasonable plan that the public will support.”

“I’m going to remain confident to the very end. I’m a positive person by nature, but I do believe this is an opportunity that both sides know cannot slip through their fingers,” he said.

Small Business Association of Michigan President Brian Calley believes “there’s a pretty good chance that something moves through” the Legislature this year.

The competing proposals from the governor and GOP legislators illustrate the philosophical differences between the two sides over broad-based versus narrow, targeted tax cuts, Calley said. Despite that friction, Calley believes the two sides can work out a tax cut plan and can “potentially do some of both.”

“I don’t think we’re in a position where we have to necessarily pick between proposals, but rather to consider: How can we best leverage this surplus in the short term in order to build a system that makes us more competitive and solves problems for the long term?” he said. “It’s hard to know for sure, but given that the state has billions of extra dollars, and has so much more money than it’s had before, spending it in a way that is not wasteful is actually quite difficult. So the idea of returning some back to taxpayers, I hope would have strong support across the board.”

In addition to endorsing the proposed reduction in the state’s corporate income tax, SBAM believes raising the earned income tax credit “has merit as well,” Calley said.

The Grand Rapids Chamber also supports increasing the earned income tax credit, Johnston said.

Given the state’s present budget surpluses, “you have to put tax cuts on the table,” said Amanda Fisher, director of the NFIB’s Michigan office. The proposals from the governor and GOP legislators represent a “starting point and something that has to be discussed.”

“Take away the federal money, and we’re still at billions of dollars each year,” Fisher said. “You can’t say, ‘OK, we can spend all this.’ You have to have a responsible approach. Are there areas where we need to increase spending, but also how can we help all Michiganders? It’s not OK to just keep all of that money and spend it.”

NFIB, with tax cuts “high” on its agenda, prefers reducing the corporate income tax. Eliminating the pension tax “is really not a tax cut because that really only affects a sliver of seniors and retirees,” Fisher said. 

Read 1896 times Last modified on Sunday, 30 January 2022 14:26
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