Republicans who control the Michigan Senate on Tuesday passed a $2.5 billion annual tax cut, voting to lower income and corporate rates while letting people claim a credit for their children and deduct more retirement income.
The step came less than a week after Democratic Gov. Gretchen Whitmer formally proposed less sweeping tax breaks for retirees and lower-wage earners. It would cost $757 million once phased in, less than a third of the GOP proposal.
It also came on the same day that Indiana Senate Republicans scuttled a plan for $1 billion in individual and corporate tax cuts in their state.
Citing a multibillion-dollar budget surplus, Michigan Republicans said it is time to return money to people hurt by the pandemic and high inflation, and to keep the state’s business climate competitive.
“Inflation is a pay cut for every Michigander,” said the bill sponsor, Republican Sen. Aric Nesbitt of Lawton. “State government may be flush with cash, but it’s not our money. … It’s the people’s money. And right now, they need to be sending less of it to Lansing so they can have more of it to fill up their cars, heat their homes and feed their families.”
Democrats who opposed the measure criticized the GOP majority for not specifying how to pay for a projected 16% general fund reduction and a smaller decline in the school aid account. The legislation, they said, would disproportionately help corporations.
“We should be providing people, individuals, with the greatest tax break in all of these proposals,” said Sen. Stephanie Chang, a Detroit Democrat who echoed the governor’s call to restore the earned income tax credit to 20% of the federal credit. It was cut to 6% a decade ago as part of a Republican-written law that slashed business taxes and eliminated tax exemptions for pensions.
“This bill is overly focused on corporations who are making profits — and some of them record profits — when as public servants we should remain focused on prioritizing Michigan’s hard-working families,” she said.
The legislation would cut the individual income tax rate from 4.25% to 3.9% and the corporate income tax rate from 6% to 3.9%. It would create a $500 per-child tax credit. A $600 deduction was removed under the decade-old tax overhaul.
People ages 67 and older could deduct more of their income from taxation.
The legislation, approved 22-16 on party lines, was sent to the GOP-led House for consideration next. Tax cuts will be negotiated during the months-long budget process that began last week.
The nonpartisan Senate Fiscal Agency estimates the personal income tax cut would cost $1 billion in the next fiscal year, the child tax credit $750 million to $800 million, the corporate reduction $465 million and the higher senior deduction at least $170 million.
Whitmer spokesperson Bobby Leddy did not give her stance on the bill and instead reiterated that “making things right again” includes cutting taxes for working families and eliminating the taxation of retirement income.