Michigan's income tax rate dropping for 2023: state treasurer

Lansing — Michigan's personal income tax rate is dropping from 4.25% to 4.05% for 2023 because state revenues outpaced inflation and triggered an automatic cut under a 2015 law, Rachael Eubanks, the state's treasurer, announced Wednesday.

The statement from Eubanks came a day after Attorney General Dana Nessel's office released an advisory opinion saying the wording of the 2015 trigger policy meant the decrease in the tax rate would last for only one year. The determination from Nessel, a Democrat, conflicted with the belief of the Republican lawmakers who drafted the past law and who believed once a cut occurred, it would be permanent.

The Department of Treasury specified in its announcement of the rate change Wednesday that the cut would last for "one year" and "put $650 million back in people’s pockets."

“When Michiganders file their 2023 state income taxes in 2024, they will see the rate adjustment in the form of less tax owed or a larger refund," Eubanks said.

The cut was revealed after the release of the state’s fiscal year 2022 Annual Comprehensive Financial Report. The formal step of adopting a consensus among state agencies with updated revenue estimates will occur as a "procedural matter" in May, the treasury department said.

Republican legislators have criticized Democratic Gov. Gretchen Whitmer's handling of the looming income tax trigger. In February, Whitmer and the Democratic leaders of the House and Senate pitched a wide-ranging financial relief plan that included $180 rebate checks that would have distributed enough revenue to circumvent the income tax cut.

However, Democrats didn't get enough votes from Republicans in the Legislature for the bill to take effect early so the rebate checks aren't happening and the income tax drop is. The tax plan, signed by Whitmer earlier this month, still includes a boost in the Earned Income Tax Credit for low-wage workers and a reduction in taxes on retirement income.

In her advisory opinion, Nessel said the Republican-authored law triggering a tax cut provided temporary, not permanent, relief for taxpayers. The 2015 law required the state to decrease the income tax rate if tax revenue increased at a rate that exceeded the rate of inflation. The law provided a formula to determine how much of a decrease should occur based on revenue.

But Nessel argued in her opinion that because the triggering event was "impermanent" and so was the decreased rate it would cause.

"Because that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the (perhaps unusual) economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well," the attorney general wrote.

Republicans, including House Minority Leader Matt Hall, R-Richland Township, accused Nessel of overreaching.

"Playing word games with the law doesn’t change the law," Hall said in a statement on Tuesday. "Michigan taxpayers deserve lasting, real relief, not a temporary money mirage brought on by Democrats’ partisan tricks.”

Hall said on Wednesday the income tax rollback was happening "despite efforts from the governor and her allies to block crucial tax relief for every single working family and small business in Michigan." Hall called the news a "major win for Republicans" and a "major win for taxpayers.

On Wednesday, Whitmer said the income tax rate was dropping because of Michigan's "growing economy and strong fiscal management."

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