(Source: MIRS.news, Published 02/01/2023) Legislative Democrats began movement Wednesday on what ultimately will be one large income tax cut/shift bill that is planned to include broader retirement income exemptions, a larger tax write-off for working families and a potential funding shift that will pay for future economic development projects, but prevent a broad income tax rollback.
Senate Democrats stripped out the retirement income changes proposed in HB 4001, starting the chain of events that will ultimately send the bill to a joint House-Senate conference committee for non-amendable changes. From there, the plan is HB 4001 will go to the House and Senate for up-or-down votes.
However, after quick action in the Senate and House Wednesday, momentum slowed. There's no conference committee scheduled for Thursday. The House is not planning on taking attendance. The issue again comes down to immediate effect in the Senate. Republicans will not supply the six votes needed to make the shift happen immediately if it means the income tax rollback is derailed.
Without immediate effect, the funding shift can't happen until long after the books close on Fiscal Year 2022, which defeats the purpose of moving the bill quickly.
“The public outcry from Michiganders across the state has blown up Gov. Whitmer’s attempt to bankroll corporations by raising taxes on people and small businesses," said House Minority Leader Matt Hall (R-Kalamazoo). “Now, she appears to be going back to the drawing board for several days to plot a new way to sneak through her secret tax hike. Democrat and Republican lawmakers alike should be united in opposing the governor’s plan to push around the Legislature and force a tax hike on the people of Michigan.”
This morning, the Senate's newly disrobed version of HB 4001 was sent back to the House on a party-line vote of 20-18.
In the House, the bill received a 53-56 non-concurrence vote along partisan lines after an effort by 16 Republican members to amend it. Rep. James DeSana (R-Carleton) began with an amendment to bring the state income tax down to 3.9%, which was shot down. After DeSana's amendment was defeated, the 15 other members – one after another -- proposed the same amendment, but with a cut that was .01 percentage point higher than the rate proposed by the prior representative.
They kept it up until the last member proposed reducing the state's 4.25% income tax rate to 4.05%.
Rep. Andrew Fink (R-Osseo) testified in opposition to the bill, calling the second call for a conference committee in two weeks a “mockery of the process that is laid out for school kids in Heritage Hall with a big ole mural.”
Just a week ago, Fink said, a similar shell bill came back from a closed-off conference committee with nearly $1 billion in spending tacked on.
HB 4001 originally restored unlimited tax exemptions for public pension holders, but is slated to become the vehicle for an omnibus bill that includes extending retirement income exemptions, a larger state Earned Income Tax Credit (EITC) and, potentially, a $800 million transfer of state revenue to the Strategic Outreach and Attraction Reserve (SOAR) Fund that would otherwise go into the General Fund.
The Michigan AFL-CIO heralded what Gov. Gretchen Whitmer called “Lowering MI Costs” in her State of the State address. The labor group advertised the plan as representing a nearly $1 billion tax cut for working families. It noted that it brings back the retirement income exemptions the Gov. Rick SNYDER administration got rid of and increases what it refers to as the "Working Families Tax Credit."
The AFL-CIO said the actions will save 500,000 retired senior households an average of $1,000 a year, deliver a refund of at least $3,000 to 700,000 hard-working Michigan families, and benefit almost 1 million Michigan children.
"Governor Whitmer and the Democratic majorities in the state legislature are working hard to restore worker freedom and give working families a fair chance at a decent life,” said AFL-CIO President Ron Beiber. “It’s time for the Republicans in Lansing to end the name-calling and hypocrisy, and join a bipartisan majority in repealing the Snyder-Calley retirement tax and boosting the Working Families Tax Credit.”
However, if moving income tax revenue to Michigan's business incentive program (SOAR) means stopping a projected income tax rollback – from 4.25% to 4.05% – Republicans aren't enthused.
"I'm disappointed because providing tax relief to all inflation-weary Michiganders, families, seniors . . . seemed like something we could all work together on in a bipartisan fashion," Senate Minority Leader Aric Nesbitt (R-Lawton) said on the chamber floor. "We were told that Governor Whitmer and the Democrats had not even considered, or even discussed preventing the scheduled income tax cut that was going to occur – $600 million returned to hardworking taxpayers here in the state of Michigan."
Nesbitt referenced how, on Tuesday, Whitmer told the media her administration was analyzing the possibility of using a retroactive budget shift from the 2022 General Fund to permanently finance the SOAR Fund before the books on Fiscal Year (FY) 2022 are officially closed by the end of March.
Brian Calley, president of the Small Business Association of Michigan (SBAM), expressed his concerns about the possible plan with MIRS, describing a retroactive redistribution as "highly unusual" and as serving "no purpose that could not be served through a more transparent appropriation to the SOAR fund, except that this backdoor approach happens to cancel the income tax rollback due to small business and other income taxpayers."
After the Senate approved the stripped-down version of HB 4001 on a party-line vote, the Michigan AFL-CIO issued a press release criticizing Calley's comments to MIRS.
"It was then-Lt. Governor Brian Calley who proudly cast the tie-breaking vote to gut the EITC in 2011, raising taxes on working-class Michiganders. Then they turned around and gave corporations and their rich CEO friends a $1.6 billion tax cut," said Michigan AFL-CIO President Bieber on Republican Calley's time as Snyder's lieutenant governor.
Both the Senate and House have voted on the chambers' respective retirement proposals. In the Senate, legislators voted 23-15 on
SB 1, reinstating tax-free public pensions and offering exemptions on employer-provided annuities and employer donations and matches for 401(k)s. (See "Tax-Free Public Pensions, Employer-Provided Pensions, Annuities Passes In Senate and House," 1/26/2023).
HB 4001, before the substitute from Senate Democrats, offered similar tax breaks on Michigan retirees, but did so through a phased-in four-year process as opposed to reaching its full capacity during next year's tax filing season. SB 1 also authorized seniors, depending on their retirement incomes, to choose between the aforementioned exemptions, if they qualified, or up to $56,961 per single filer, or up to $113,922 per couple, in non-restricted deductions.
