Michigan Legislature approves $1 billion in tax relief; GOP decries fairness

Lansing — The Michigan Legislature approved proposals Thursday that would provide about $1 billion in tax cuts, advancing top priorities of Gov. Gretchen Whitmer less than four weeks after Democrats took full control of the Legislature.

Senators voted 27-11 to expand the state's Earned Income Tax Credit, which will save low-income workers about $442 million a year on their tax bills. Then, senators voted 23-15 to change how the state taxes retirement income, bringing back an exemption for public pensions and dropping state revenues by about $500 million annually.

Both bills, which still have to go to the state House, aim to undo policies that were signed into law by former Gov. Rick Snyder, a Republican, a decade ago when he and GOP lawmakers overhauled the state's tax system.

The House passed its own retirement tax repeal and earned income tax credit increase, with some slight differences from the Senate. The House's retirement tax repeal would phase in over four years through 2026 and it's earned income tax credit increase was amended to match the Senate's rate of 30% of the federal credit.

The House passed its retirement tax repeal 67-41, and the Earned Income Tax Credit on a lopsided 100-8 vote.

Republicans argued Thursday's bills didn't go far enough to provide tax relief amid rising costs. But Democratic lawmakers said they were providing aid while making good on campaign vows to remove tax standards they believe unfairly impacted retirees.

"The time is now to provide our seniors with the extra money that they need," Sen. Kevin Hertel, D-St. Clair Shores, said. "The time is now to restore the promise that we have made to seniors across this state.”

In the House, Rep. Angela Witwer, D-Delta Township, said her retirement tax repeal bill helps to right a wrong inflicted on seniors more than a decade ago.

"These people, these retirees have been met with unexpected burdens and unexpected expenses," she said. "With inflation running high, every penny counts.”

However, Senate Minority Leader Aric Nesbitt, R-Porter Township, said the retirement tax changes would primarily benefit individuals with large pensions from government jobs and would only help one-third of the seniors in Michigan.

“How is that fair? How is that equitable?" Nesbitt asked.

The votes in the House and Senate on Thursday came a day after Whitmer delivered her fifth State of the State address. During the speech, Whitmer said the "No. 1 issue for folks trying to make ends meet is costs."

"With inflation, every dollar saved makes a difference," the governor said on Wednesday. "That’s why we’re moving fast."

Whitmer sought similar proposals on the Earned Income Tax Credit and retirement income in 2022, but she and the GOP-controlled Legislature couldn't reach a consensus on how to provide tax relief.

Democrats won control of the House and Senate for the first time in 40 years in the November election, allowing the party to move Whitmer's priorities and undo tax changes made by Snyder in 2011.

Under the Senate's Earned Income Tax Credit (EITC) proposal, Michigan would go from allowing qualifying taxpayers — those with low to moderate incomes, according to the Internal Revenue Service — to credit 6% of their federal EITC against their state income tax to 30%.

The proposal is expected to reduce state revenues by about $442 million, according to the nonpartisan Senate Fiscal Agency. Whitmer's administration has said the change will impact 700,000 families, amounting to an average financial benefit of about $600 per family.

Sen. Kristen McDonald Rivet, D-Bay City, emphasized the new bill included language that allows families to claim the 30% credit for their 2022 taxes if Whitmer signs it into law soon.

"This puts money into the pockets of working families now when they need it the most," Rivet said.

In 2011, Republicans and Snyder dropped the EITC match from 20% to the current 6% as part of a larger tax overhaul.

Seven Republican senators voted Thursday for the new Democratic proposal while 11 voted against it. Sen. Thomas Albert, R-Lowell, was among the no votes, saying he wanted a broader tax relief measure to allow more people to see financial benefits.

"This plan will not help average hardworking Michigan families," Albert said.

Sen. Ed McBroom, R-Vulcan, was among the GOP yes votes. He said the measure was among the best tax relief options that could currently be accomplished for young families.

More than a dozen Republican lawmakers in the House supported the retirement tax repeal bill and dozens supported the increase to the Earned Income Tax Credit.

Like the EITC, Snyder's administration overhauled how the state taxed retirement income in 2011. For those born after 1946, lawmakers at the time removed a full exemption from the income tax for public pensions and decreased deduction limits for other forms of private retirement funds.

Under the 2011 changes, those born after 1952 can claim an exemption for all income once they reach 67 of $20,000 for single filers and $40,000 for joint filers. Those born before 1946 could claim much larger exemptions for private pension income, tied to inflation.

In 2014, Snyder contended the changes made things "fair between people who had retirement income and people who had working income."

Democrats have been working to undo the 2011 policy for more than decade, a campaign that's been dubbed "repeal the pension tax." They have argued the 2011 changes unfairly altered the financial rules for retirees after they had already planned their futures.

The Senate bill approved on Thursday brings back the pension exemption and allows all retirees to benefit from the larger exemptions. Under the new proposal, other forms of retirement benefits than public pensions are deductible up to $56,691 for a single return and $113,922 for a joint return. The limits are tied to inflation going forward.

The Senate Fiscal Agency said the proposal will cut state revenues by about $500 million a year. Whitmer's office said the retirement changes will benefit 500,000 households.

The retirement changes would take effect for the 2023 tax year, Hertel said.

Nesbitt and Senate Republicans floated their own plan Thursday to allow those over 67 to receive a standard $50,000 deduction. Nesbitt said he wasn't certain how much the GOP proposal would cost.

Staff Writer Beth LeBlanc contributed.

cmauger@detroitnews.com