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Published: Wednesday, 5/25/2011

Michigan Gov. Rick Snyder signs most sweeping tax change in state since Proposal A in 1994


LANSING — Gov. Rick Snyder on Wednesday signed a bill drastically cutting business taxes while raising taxes on individual taxpayers, creating the most sweeping tax restructuring since voters fundamentally altered the way Michigan schools are funded in 1994.

"It's going to make us competitive, it will create jobs, it will keep our young people in this state," Snyder declared before signing the measure into law. Lt. Gov. Brian Calley called it "a game-changer for Michigan," noting the state now will be among the 20 states with the lowest business and individual taxes.

Union leaders expressed skepticism that the changes will lessen Michigan's 10.2 percent unemployment rate, saying that businesses nationwide are sitting on healthy cash reserves but not hiring.

Michigan AFL-CIO President Mark Gaffney noted that demand for more of a company's products or services is what causes it to hire workers, "not the fact that there's more money being poured into corporate coffers."

He said the new law will raise the amount paid in individual income taxes by making individuals — including most retirees and the working poor — pay more, which "could potentially be an economic drag as the consumer has less money to spend."

On Jan. 1, the state will switch from the existing Michigan Business Tax to a 6 percent income tax mostly on large corporations that have shareholders. Overall business tax revenue will shrink by about $1.1 billion in the fiscal year that starts Oct. 1 and $1.7 billion the following year. Some large companies will pay higher taxes under the change, but about two-thirds of businesses will be exempt from the new tax.

Meanwhile, individual taxpayers will pay $559 million more next year in taxes under the new law than they did before, an amount that rises to $1.4 billion in 2012-13. Much of that will come from seniors who will have to pay taxes on retirement income that was largely or entirely exempt under current law, although most individuals will pay more after losing deductions and credits.

Low-income workers will see the Earned Income Tax Credit drop from 20 percent of the federal credit to 6 percent. A typical qualifying family that now gets about $430 from the state credit will get $130 to $140 instead.

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