Michigan lawmakers call for state income tax cut, cite projected budget surplus

1/3/2014

LANSING, Mich. — Anticipating a sizable budget surplus, Republican lawmakers want to enact a broad-based tax cut for residents this election year — most likely a reduction in Michigan’s income tax.

While talks continue and no deal is imminent, the top tax writer in the GOP-led Senate said he soon will propose cutting the personal income tax rate from 4.25 percent to 3.9 percent over four years, which would return the levy to where it was in 2007. Republicans who control the House also hope to pass an income tax reduction.

The push for lower taxes comes a month before Gov. Rick Snyder unveils his proposed budget and after the state has collected hundreds of millions of dollars more than projected eight months ago. Legislators will return to session Wednesday after a monthlong break and on Friday will get a consensus estimate on revenues.

A surplus carrying over from last fiscal year and higher amounts expected to come in this budget year and next total nearly $1.3 billion thanks to an improving economy and factors such as lower-than-expected business tax refunds, according to the nonpartisan Senate Fiscal Agency.

Rep. Jeff Farrington, who chairs the House Tax Policy Committee, said it’s time to help individual taxpayers after lawmakers previously voted to reduce business taxes. He declined to release specifics but said an income tax change should be both “significant” and lasting, “not some gimmick.”

“It’s their money. I think some of it needs to go back to them,” the Utica Republican said.

The income tax rate dipped from 4.35 percent to 4.25 percent in 2012. It had been increased in 2007 under a budget-balancing deal and was scheduled to gradually drop back to 3.9 percent by late 2015.

When Snyder took office in 2011, however, he and fellow Republicans offset their $1.6 billion business tax cut with a $1.4 billion increase on individuals, which included taxing retirement income and not letting the income tax rate drop as much as planned.

“That was a promise we made to people in ‘07. I think that promise should be honored,” said Sen. Jack Brandenburg, a Republican from Macomb County’s Harrison Township. He plans to introduce tax cut legislation in the Finance Committee he chairs in January. The bills will call for dropping the rate a tenth of a percentage point each year starting in 2015 until it hits 3.9 percent in 2018.

Taxpayers could save more than $200 million in year one, which equates to about $45 on average per individual tax return.

The size of a tax cut will depend on the extent to which lawmakers emphasize other priorities such as public education funding and road and bridge maintenance.

Another unknown is Snyder, who may look warily at a major tax reduction after stabilizing the budget but also is up for re-election in November. With likely Democratic opponent Mark Schauer and critics highlighting his tax hikes on individuals, an election-year tax cut could prove helpful.

Snyder spokeswoman Sara Wurfel said he will wait until after the revenue-estimating meeting to talk specifics about any potential tax cut. She added that he’s “always open to and looking for ways that could best help Michiganders” while staying fiscally responsible.

Republican House Speaker Jase Bolger of Marshall hopes to cut taxes and boost spending on transportation and early childhood education.

“The first place I look when I hear the word surplus is returning it to taxpayers,” he said in a Thursday interview. Bolger said no tax plan has been finalized and he’s open to various options, but reducing the income tax is “certainly something I can support.”

Republican Senate Majority Leader Randy Richardville of Monroe, who in 1999 sponsored a law that gradually cut the income tax, said Friday that “it’s definitely time to consider a similar type of giveback.” He also listed education and roads as budget priorities.

To address concerns about putting the budget out of whack, legislators could add triggers to automatically pause a tax reduction if economic growth slows in the future or phase the cut in over more years.

“We need to make sure we can keep that promise over a long term of time,” Richardville said of steadily lowering the rate.

Democrats also have called for more investment in schools and lower taxes, though typically in the form of targeted relief. They want to reverse the decision in 2011 to tax residents’ pensions and other retirement income. They also are asking to restore credits, deductions and exemptions for low-income earners, children and middle-class homeowners that were reduced or eliminated by the GOP.

Key Republicans in the majority, however, say it’s fair to ask retirees to pay income taxes and prefer a broader-based tax reduction.

“I would hope that the governor would also be on board,” Brandenburg said. “It’s good policy and it’s good politics.”