The state’s 4.25% income tax rate would be cut to 4.05%, matching the level the state landed on after the one-year rollback spurred by the 2015 gas tax reduction, under legislation that moved out of a House committee Tuesday morning.
HB 4170, sponsored by Rep. Kathy Schmaltz (R-Jackson), would save the average taxpayer as much as $140 a year, according to testimony at the House Finance Committee on Tuesday.
“That’s a lot of money for people,” Schmaltz said. “We forget about that. That means a lot to people, even though it sounds like a small amount.”
All the Republican committee members voted to move the bill to the House floor. Reps. Kelly Breen (D-Novi) and Jason Hoskins (D-Southfield) passed on the vote. Reps. Tyrone Carter (D-Detroit), Cynthia Neeley (D-Flint) and Stephanie A. Young (D-Detroit) voted no. Rep. Veronica Paiz (D-Harper Woods) was not present.
Prior to the vote, Breen tried to drill down on the estimated $539 million state revenue loss for the current fiscal year, since HB 4170 retroactively starts the income tax cut as of Jan. 1 of this year.
“What are we cutting in the current budget? What are we not going to pay for?” Breen asked Schmaltz. “I would say, ‘Keep that $130 to pay for a road that might not otherwise get fixed.’”
Breen added the tax cut may end up being offset by a vehicle repair caused by a bad road or a medical service that someone would have to pay for out of pocket.
“I can’t think of a better use for our money than giving it back to taxpayers,” Schmaltz responded. “We have enough money.”
Schmaltz responded that the Governor’s proposed budget for the next fiscal year is $1 billion more than last year and that the current budget is chock-full of pork like a “hip-hop academy” and a “splash pad.”
“I’m sorry, Rep. Schmaltz, I mean this budget that we’re in. How are we going to go back and fix that?” Breen broke in.
“A lot of the earmarks that were put in past budgets will not be happening this year,” Schmaltz responded.
“But this is money we’ve already allocated,” Breen persisted. “I’m wondering: How do you propose we fix that?”
“We have the money there to give back to taxpayers,” Schmaltz concluded. To that, Breen gave up.
Later in the morning, House Speaker Matt Hall (R-Richland Township) said a vote on the income tax cut bill would come “quickly,” but didn’t provide any precise timeline.
Republicans are framing the tax cut as reserving an “income tax hike” the Democrats orchestrated based on Attorney General Dana Nessel’s 2023 opinion that the 2015 gas tax package reduced the income tax any time when the percentage increase in the General Fund exceeded the inflation rate for one year only. Republicans argued the law made an income tax rate reduction permanent.
Michigan’s income tax rate has fluctuated between 6.35 percent and 3.9 percent since 1972. Prior to the Great Recession, the rate was at 3.9 percent due to a rollback plan passed under the John Engler administration. With the Great Recession, the rate reverted to 4.35 percent, then was cut to 4.25 percent during the Gov. Rick Snyder administration, according to the Senate Fiscal Agency.
Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter
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