Senate and House Move Forward On Income Tax Cut

The State Senate and State House have both begun to pursue personal income tax cuts this week. Governor Snyder’s tax proposal, however, will not be released until he puts forward his budget recommendation on February 5^th.

Senate

The Senate pushed SB 402 through committee on a 5-2 party-line vote that would gradually decrease the income tax from its current rate of 4.25 to 3.9 percent by 2017.

While other alternatives include increasing the personal exemption or a one-time rebate, Senate Finance Committee Chair Senator Jack Brandenburg (R-Harrison Township) has stated that he prefers a rate cut. When the rate was increased from 3.9 to 4.35 percent in 2007, the legislation called for gradually reducing the tax back to its original rate. In 2011 the rate was frozen at 4.25 percent as part of a tax overhaul, a measure that Senator Brandenburg opposed.

In the first year, SB 402 would reduce the state’s General Fund by $143.6 million, and when fully implemented in 2017 would reduce state revenue by $873.5 million annually.

Senate Democrats criticized the proposed rate cute as an election-year gimmick and believe that it will do little to mitigate the effects of the pension tax and the elimination of numerous tax credits that arose from the 2011 tax overhaul. The Democrats have proposed putting surplus revenue towards K-12 per pupil funding.

House

State Representative Jeff Farrington (R-Utica), Chair of the House Tax Policy Committee, Representative Pat Somerville (R-New Boston), and Representative Tim Kelly (R-Saginaw Township) are sponsoring a package of legislation that would reduce the income tax to 4.05 percent in 2016. The package also includes a “trigger” that, after the 2016-2017 fiscal year, would reduce the rate by an additional 0.1 percent upon any increase of state revenue of $300 million or more. Representative Farrington stated that the Senate plan to roll back the tax rate was too large.

The proposed legislation (HB 5265, HB 5266, and HB 5267) will initially reduce revenues by $180-200 million. In the second round of cuts that number would increase to $380-400 million.

posted by PAA Online , Friday, January 31, 2014 11:04 AM
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