Republicans Announce Deal On Tax Reform

Governor Rick Snyder’s hope to have the fiscal year (FY) 2012 budget negotiations wrapped-up by May 31^st took a significant step towards reality this week when the Governor, Senate Majority Leader Randy Richardville (R-Monroe) and House Speaker Jase Bolger (R-Marshall) announced their agreement on major tax reform. A press release from the Governor’s office is available here.

Although the agreement is in principle only at this point, and the legislative leaders still have to obtain the necessary votes from their respective caucuses, the deal went a long way to soften the most controversial portion of the Governor’s original proposal – the elimination of state income tax exemption on pensions. The agreement calls for a three-tiered, gradual implementation of pension taxation, most significantly maintaining the status-quo for those individuals born prior to 1946. Other portions of the individual income tax-side of the Governor’s proposal are maintained in the agreement such as the elimination of most credits, including the Earned Income Tax Credit (EITC).

The new structure leaves a significant hole in estimated revenue generated as it would raise approximately $300 million, $600 million less than the Governor’s original proposal. To address the difference, the leaders announced their agreement to an additional $150 million in further budget cuts, a delay in the 0.1-percent decrease in the individual income tax rate (from 4.35-perecent to 4.25-percent) to January of 2013, additional technical changes and a significant reduction in the number of taxpayers eligible to claim the Homestead Property Tax Credit.

The same level of detail was not released in regard to the business tax portion of the deal; however, it appears the Governor’s 6-percent corporate income tax (CIT) proposal would remain largely unchanged – eliminating the Michigan Business Tax (MBT) and taxing only C-corporations, with “flow-through entities” such as partnerships, S-corporations and LLCs taxed only at the individual income tax level.

Although target revenue numbers have clearly been agreed to, along with a significant portion of the overall tax structure, conversations appear to be ongoing regarding the transition of credits from the MBT to the CIT. An earlier-discussed plan to allow businesses to remain paying the MBT in order to keep their certified credits is reportedly the objective.

posted by PAA Online , Friday, April 15, 2011 10:49 AM
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