LANSING — A state revenue boom is likely to lower the state’s income tax rate for the 2023 tax year, from 4.25% to 4.05%, the House Public Finance Agency said in a report released Thursday.
The income tax cut, if enacted, would cost the state general fund something in the region of $660 million annually, triggered by a 2015 law designed to lower the income tax rate when state general fund revenues exceed certain levels.
The report said House fiscal experts cannot make the call with certainty until the final numbers for fiscal 2022 are released.
However, “based on the primary revenue of the General Fund for fiscal year 2021-22, the trigger effect will kick in and lower the income tax rate in TY (tax year) 2023 to 4.05%,” the report said.
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Asked about the report at a news conference Thursday to highlight Democratic tax cuts and tax credit plans that neither include nor budget for an overall cut in the state’s income tax rate, Gov. Gretchen Whitmer said the projection is “premature,” because the state has not yet closed its fiscal books. In fiscal year 2022.
Asked if Democrats would try to amend the 2015 law if such a measure was necessary to prevent a cut in the income tax rate, Whitmer said, “I wouldn’t anticipate what may or may not happen.”
The House Fiscal Agency report was prepared for the Government Revenue Estimation Conference, which will be held at the Capitol on Friday. At that conference, the treasurer, director of the state budget, and other officials attempted to reach a consensus on how much tax revenue the state could expect to collect over the next three years.
The higher-than-expected state revenue resulted in a surplus of nearly $7 billion in revenue from the Commonwealth Fund and the School Aid Fund, even after heavy spending on economic development stimulus and other projects.
But news of the potential factor comes as many economists warn of a recession.
The last revenue appreciation conference was held in May. Based on the numbers provided at the time, a 0.2-point cut in the state income tax rate could cost the state about $660 million annually. That number could change somewhat, based on updated revenue estimates reached at Friday’s meeting.
Republican lawmakers had been pushing for an overall cut in the income tax rate, but Whitmer, a Democrat, has vetoed such laws, calling instead for an increase in the Earned Income Tax Credit, which helps low-income working families, and a repeal of increased taxes on Pensions introduced under former Governor Rick Snyder. Those ideas were incorporated into bills highlighted at a Capitol news conference with Speaker of the House Joe Tate, of Detroit, and Senate Majority Leader Winnie Brinks, D-Grand Rapids, on Thursday.
Bills introduced in the House and Senate, separately, would restore the state’s EITC to 20% of federal credit, and gradually increase it to 30% of federal credit.
In the 2019 tax year, about 738,380 Michigan families received an average credit of $150, returning more than $110 million to the local economy. The Michigan Public Policy Association said in a press release that returning credit to 20% of federal credit would quickly get Michigan to work with other states. The association said that increasing Michigan’s EITC to 30% of federal credit would mean an average credit of $749 for these families.
Whitmer said the proposed pension tax changes would save about 500,000 Michigan seniors an average of $1,000 a year each.
Both groups, Whitmer said, had “the rug pulled out from under them” by the previous administration and high inflation makes it more important now than ever to “do what’s right by the people of Michigan.”
Meanwhile, state Republicans have also introduced a bill to increase the EITC to 20% of the federal tax credit and another that would give tax breaks to seniors more broadly.
“(All retirees) need this relief in times of inflation and the rising cost of living, and therefore, we are proposing widespread relief for all seniors in Michigan,” House Minority Leader Matt Hall, R-Richland Township, said at Wednesday’s news conference.
Staff writer Dave Boucher contributed to this report.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.