Whitmer signs tax relief plan, will 'follow the law' on income tax rate reduction

Lansing — Michigan Gov. Gretchen Whitmer signed a bill Tuesday that will decrease taxes on retirement income and boost a credit that benefits low-wage workers while vowing to "follow the law" on a potential cut in the state's income tax.

Whitmer's signature at a press conference inside the Michigan Capitol's Heritage Hall capped more than a decade of political debate over a tax code overhaul then-Republican Gov. Rick Snyder enacted in 2011. That past GOP-backed legislation was wide-ranging but included provisions to subject more retiree income to taxation and to slash the Earned Income Tax Credit (EITC) from 20% of the federal credit to 6%.

Democrats won control of the House and Senate in November for the first time in 40 years. Their plan restores larger deduction limits for retirees over a four-year period and puts the EITC at 30% of the federal credit.

"It's a new day in Lansing," Whitmer said. "And I'm excited to sign a $1 billion tax cut for seniors and for working families."

The tax legislation originally included a plan to distribute $180 rebate checks, totaling about $800 million, to circumvent an anticipated drop in the 4.25% personal income tax. A 2015 state law, which tied the income tax to revenues, is expected to soon decrease the rate to 4.05%.

However, for the rebates to be sent out to avoid the cut, the bill required the changes in state tax law to take effect by April 18. Democrats didn't get enough support from Republicans in the state Senate to allow the bill to take effect early.

Asked about the potential income tax cut, which could drop state revenues by about $700 million on top of the nearly $1 billion in decreases signed Tuesday, Whitmer said there was still work to be done to close the financial books to decipher whether the tax rate cut must happen.

"I will follow the law no matter what the law is," Whitmer told reporters Tuesday. "I will change bad laws. I will sign efforts to make good laws stronger. Obviously, we are bound by the law."

Some have questioned whether the 2015 law is constitutional and whether the income tax cut is permanent or only occurs for one year and then must be recalculated from 4.25%.

"There are a lot of different interpretations I want to make sure that we understand precisely because this has never been done before," Whitmer said.

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Republicans, including House Minority Leader Matt Hall, R-Richland Township, have championed the possible income tax cut.

"This new law carries out our Republican plans to create fair savings for retirees and working families, building on the permanent income tax cut that will automatically go to every Michigander and every small business this year," Hall said. "The governor tried to nip it in the bud, but this tax cut will help everyone in Michigan flourish."

The EITC boost would reduce individual income tax revenue by about $385 million per year, according to the House Fiscal Agency. Whitmer's administration has said the change will benefit 700,000 households.

By fiscal year 2026, the phased-in retirement changes would save taxpayers about $515 million a year, primarily by allowing retirees to deduct larger amounts of their income, according to the House Fiscal Agency.

The proposal would eventually restore deduction limits that were in place for all retirees before the 2011 tax overhaul. Currently, only individuals who were born before 1946 get the higher limits. For the 2022 tax year, the higher deduction limits of private retirement income were capped at $56,961 for single filers and $113,922 for joint returns.

On Tuesday, Paula Cunningham, state director of the AARP, called it a "long journey" to undoing the 2011 tax changes. She said more than 700,000 people had learned after saving for their retirement that they would have to pay additional taxes.

Another prong of the new package would divert up to $600 million from corporate income tax revenue every year for the next three years if corporate income tax revenue exceeds $1.2 billion.

The diversion would push $50 million toward a housing and community development fund, $50 million to a revitalization and placemaking fund and $500 million toward the state’s business incentive program, the Strategic Outreach and Attraction Reserve (SOAR) fund.

cmauger@detroitnews.com

Staff Writer Beth LeBlanc contributed.