Michigan Democrats pitch plans to lower income tax bills by $1B

Lansing — Top Michigan Democrats pledged Thursday to help households struggling with rising prices, laying out a plan to reduce annual income tax bills by nearly $1 billion by slashing taxes on retirement income and expanding a tax credit that benefits low-wage workers.

Gov. Gretchen Whitmer, Lt. Gov. Garlin Gilchrist, Senate Majority Leader Winnie Brinks, D-Grand Rapids, and House Speaker Joe Tate, D-Detroit, participated in a press conference in the state Capitol’s Heritage Hall to announce the proposals the day after the Legislature opened its 2023 session.

Tate said his caucus was “committed to making good on our promises to deliver meaningful relief.”

“These policies are a way that we can really help Michiganders who are struggling right now,” Whitmer said. “That’s why this is a moment to be optimistic and be excited about where we are headed and get it done so we can help people.”

The new Democratic majorities introduced bills on Thursday to undo retirement tax changes that were put in place by former Republican Gov. Rick Snyder. The proposals would be phased in over four years, would again exempt public pensions from the income tax and would restore larger deductions for private retirement income, impacting an estimated 500,000 households.

Democrats also unveiled bills to expand the earned income tax credit. The House bill would immediately increase it from 6% of the federal credit to 20%. The Senate bill would boost it from 6% to 30% by the end of the 2025 tax year.

The retirement tax changes would eventually save taxpayers nearly $500 million, about $1,000 on average across 500,000 households, according to the governor’s office. Increasing the earned income tax credit, which targets those with incomes under $59,187, to 30% of the federal credit would help about 700,000 Michigan families get an additional $600 in tax relief, according to the Michigan League for Public Policy.

A Senate Fiscal Agency analysis from 2022 said a similar proposal to move the earned income tax credit to 30% would eventually reduce state revenues by about $460 million annually.

The state has had a surplus in funds, but there’s been disagreement in Lansing over how to use them. Democrats took control of the Legislature from Republicans in the November election for the first time in 40 years.

Whitmer has sought the earned income tax credit and retirement changes previously. However, Republicans have called for broader tax relief measures, including a decrease in the 4.25% income tax rate, a per-child tax credit and sweeping reductions in taxes on retirement income.

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“It is important that any serious tax relief legislation works to provide that relief to all Michiganders and not just pick winners and losers,’ Senate Minority Leader Aric Nesbitt, R-Lawton, said on Thursday. “All Michiganders need tax relief — relief from high inflation, high grocery prices, high gas prices and energy costs and just making ends meet.”

House Minority Leader Matt Hall, R-Richland Township, said people would have to wait a year for relief under the current Democratic plan.

“The governor and Democrats should work with House Republicans to secure real relief for the people without delay,” Hall said.

Whitmer said the introduction of bills on Thursday was the start of a process that will include negotiation.

But Democrats did emphasize the need for action. Gilchrist said high costs were the No. 1 challenge people are facing.