Senate Majority Leader Randy Richardville, R-Monroe, (back, center) and (from his left) Sens. Mark Jansen, R-Gaines Twp.; Darwin Booher, R-Evart; Arlan Meekhof, R-West Olive Twp.; and Mike Kowall, R-White Lake, joined Gov. Rick Snyder as he signs into law eight-bill tax package.Day 143: This is one in a series of posts assessing key developments during Gov. Rick Snyder's self-imposed 182 days to chart a new course for Michigan by July 1. For earlier posts go to mlive.com/stateofchange.
Gov. Rick Snyder signed the biggest tax overhaul in Michigan in 17 years that finances the elimination of the Michigan business tax with a bundle of changes to the personal income tax.
Overall, it amounts to a $220 million net cut in tax revenues to state coffers, but for Michigan businesses, including some 100,000 that no longer will have to pay the repealed Michigan Business Tax, it’s a $1.65 billion cut.
The difference is being made up with $1.42 billion in additional income taxes, which includes applying the tax to pensions and other retirement income.
“Something fundamentally had to happen to make us a great state again,” Snyder said before signing House Bill 4361 into law as Republican lawmakers looked on.
Snyder made eliminating the MBT the central plank of last year’s campaign and he accomplished the feat just three months after he unveiled details of the plan back in February. He said the four-year-old MBT “simply had to go away. It killed jobs in our state.”
It’s being replaced with a 6-percent tax on the profits of some 40,000 companies doing business in Michigan that file a federal corporate income tax form.
But making up for the revenue loss is more controversial.
Currently, private pension income up to $90,240 for joint filers is exempt from income tax. All public pension income is exempt. For those born before 1946, those exemptions will remain under a law that first affects the tax year beginning Jan. 1, 2012.
Tax filers born 1946-1952 would receive a smaller pension tax exemption of $40,000 for joint filers, $20,000 for single filers. Those born after 1952 would pay tax on all pension income. As under current law, Social Security and military pensions would be exempt. The pension tax changes raise $343 million.
Snyder said the plan defuses what he called the “time bomb” of an aging demographic in Michigan that threatened to push more and more of the state tax burden onto younger wage earners.
The second biggest income tax change wipes out the Homestead Property Tax Credit, which has a $1,200 maximum, for households making more than $50,000 or those with homes with a taxable value of more than $135,000. The current income threshold is $82,650. The change affects some 268,500 tax filers.
The Michigan Earned Income Tax Credit for low-income wager earners would be reduced from 20 percent of the federal credit to 6 percent. That takes the average $430 state credit received by nearly 800,000 claimants down to $143.
As to Democratic assertions that there is no guarantee the tax changes will create jobs, Snyder acknowledged it was a challenge to argue it would generate a set amount of new hires.
But Lt. Gov. Brian Calley said the plan allows small and medium-sized firms to once again view Michigan as good place to grow. “This plan recognizes them for the job creators they are.”
Contact Peter Luke at (517) 487-8888 ext. 235 or e-mail him at pluke@boothmichigan.com