LANSING — Gov. Rick Snyder won a key, razor-thin victory Thursday with Senate approval of a broad plan that would cut overall business taxes, eliminate some tax credits and raise income taxes on many Michigan residents.
The Republican-led Senate passed the main bill in the tax package by a 20-19 vote, with Lt. Gov. Brian Calley voting to break a 19-19 tie. Seven Republicans joined all 12 Democrats in voting against the bill.
The lieutenant governor has had to break Senate ties multiple times this year as some Republicans have balked at voting for the GOP governor’s proposals, including education for K-12 and higher education funding.
Snyder said Thursday the tax proposal is key to his plan to reinvigorate the state and make it more attractive to businesses. Supporters say the change is needed to spur businesses to create more jobs in a state that had a 10.3 percent unemployment rate in March, down 3 percentage points from a year ago but still above April’s national average of 9 percent.
“It’s about Michiganders winning together and it really is about creating jobs,” the governor, a former Gateway computer executive and venture capitalist, told reporters. Many of the GOP governors who took office this year have moved to sharply reduce business taxes.
Democrats say the business tax cuts come largely at the expense of retirees who will have some of their income taxed, as well as lower-income workers. Several Democratic senators chided Republicans for increasing taxes on seniors so they could give businesses big tax breaks.
Senate Democratic Leader Gretchen Whitmer of East Lansing said Republicans had voted to cut business taxes and raise taxes on individuals “without any guarantee it will create one job.”
“It’s just not right,” said Sen. Coleman Young II, a Democrat from Detroit. “We’re going to tax Grandma out of house and home so businesses can pay less.”
AARP Michigan said in a statement that many seniors who made their retirement decisions based on not having to pay the state income tax were disappointed they’ll see their income shrink because of the tax. Some retiree groups say extending the tax to public pensions is unconstitutional and have threatened to challenge the law in court.
But Calley, speaking before he cast the tie-breaking vote, said it made no sense to push the tax burden onto younger workers so seniors could continue paying little or no income tax toward the state’s needs.
“What I ask is that everybody in this state start to pull in the same direction, that we start believing in the future, instead of denying the reality that we face today,” he said.
That argument didn’t sway seven Republicans who voted against the measure, in large part because they considered the tax on retirement income and the loss of tax exemptions for seniors to be a large tax hike. Voting “no” were GOP Sens. Jack Brandenburg of Macomb County’s Harrison Township, Patrick Colbeck of Wayne County’s Canton Township, Dave Hildenbrand of Lowell, Joe Hune of Hamburg, Rick Jones of Grand Ledge, David Robertson of Grand Blanc and Tory Rocca of Sterling Heights.
The bill was sent back the Republican-led House so House members could approve Senate changes before the bill goes to Snyder for his signature. The House passed a similar version of the bill two weeks ago. Snyder wants the House to wrap up action on the measure Thursday so he can sign it into law as soon as possible.
The plan would cut overall business taxes by about $1 billion in the fiscal year starting Oct. 1 and $1.7 billion the following year. A key provision would replace the Michigan Business Tax with a 6 percent corporate income tax while eliminating many types of tax credits and exemptions.
Some tax exemptions on retiree income would end. Those 67 and older as of Jan. 1, 2012, would continue to get the same tax breaks they have now, but taxes would apply to some retirement income for those ages 60 to 66. Income from Social Security and military pensions would remain exempt.
The state’s Earned Income Tax Credit for low-income workers would be kept, but it would be scaled down. The state credit, now worth 20 percent of the federal credit, would be reduced to 6 percent of the federal credit. That means a typical qualifying family that now gets about $430 from the state credit would get $130 to $140 instead. Snyder originally proposed eliminating the state credit entirely, but was on board with the reduced payments.
A scheduled rollback of the state’s personal income tax rate, now 4.35 percent, would be delayed — another move that concerned some Republicans, who hold a 26-12 advantage over Democrats in the Senate.