“Tax relief” became a well-worn buzzword in Michigan’s capital early this year when the state estimated it would have almost a billion dollars in extra revenue on hand.
Since Gov. Rick Snyder released his proposal for relief in his budget recommendation, several bills have emerged that call for larger reductions than the governor recommended.
Democratic legislators, citing inadequate funding for roads, municipalities and public education, have been vocally opposed to the extent of the bills, although there is little they can do in the Republican-controlled legislature.
In the House, a series of bills are in committee to reduce Michigan’s flat income tax. The first two bills would change the income tax from the current 4.25 percent to 4.05 percent in two years, reducing state revenue by more than $600 million.
The reduction won’t equate to much for the average MSU student, senior economist at the non-partisan House Fiscal Agency Jim Stansell said.
“If you’re working minimum wage at half-time … you’re not looking at that much (of a difference),” Stansell said.
Accounting professor Sanjay Gupta said the tax cut legislation would affect the size of state government more than it would stimulate spending. But Republican lawmakers have indicated they are motivated more by returning money to taxpayers.
Another bill from Rep. Jeff Farrington, R-Utica, mandates each year after 2016 the state has more than $300 million in excess revenue, the tax will be reduced 0.1 percent.
Farrington said the bill would keep the government lean. The cut could not occur two years in a row.
“It puts a constraint on the future spending of the legislature,” Farrington said, but acknowledged the importance of investment when “we have debts to pay down and roads to improve.”
Gupta said the bill does not have much precedent.
“When you do need the money, (it becomes difficult) to raise those funds,” Gupta said. He said the state should add to its rainy day fund.
Stansell said increasing the fund always is an option, but said the bill makes tax policy less aware.
“Anytime you have an automatic trigger, you’re not allowing the current circumstances to dictate what should or should not be done,” Stansell said.
It does not mean future tax policy would be set in stone.
“You can always amend the law,” Stansell said. “The difference is you’re forcing a future legislature to change the law.”
Snyder’s recommendation was a tax credit expansion for some homeowners and renters that returned some state income tax.
Currently, the bill is limited to individuals whose total income for their entire household does not exceed $50,000. Governor Snyder proposed raising the resources ceiling on the credit to $60,000 and increasing the percent recipients would see returned.
But a bill passed the Senate Finance Committee last week that increased Snyder’s proposed ceiling significantly. Although the percent eligible taxpayers would see returned will remain the same, the ceiling for total increases will be capped at $82,650.
The bill wouldn’t affect MSU students renting housing unless the students’ household resources exceeded $41,000 last year.
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The credit expansion bill was recommended to the entire Senate on Tuesday. The House bill will be discussed by the Tax Policy Committee on Wednesday.
Editor’s note: The headline has been changed to clarify that income tax cuts were introduced as legislation, and not as part of Gov. Snyder’s budget recommendation.
