Senate and House Republicans ratcheted up their tax cut plans Tuesday, and their ideas were winning support from Democrats.
House Speaker Tom Leonard, R-DeWitt, unveiled a plan to hike the personal exemption for state income tax returns to $4,800 by 2020 while awarding a $100 tax credit to every person age 62 and older.
Leonard's officials said the plan, to be taken up by a House committee on Wednesday, would cut personal taxes by $245 million in 2018, $356 million in 2019, and $371 million in 2020.
As Leonard announced his plans, the Senate Finance Committee was reporting out one bill related to the personal exemption that the committee chairman, Sen. Jack Brandenburg, R-Harrison Township, said would cut taxes by close to $200 million and another bill to create an $81-million dependent care credit that its sponsor said would save a family of four $500 a year.
The tax cut bills were spawned by the recently approved federal tax cut package, which state officials have said will create an unintended state tax increase of about $1.5 billion by eliminating the state personal exemption. Gov. Rick Snyder and Lt. Gov. Brian Calley proposed a fix that would have been close to revenue neutral, but Republican leaders in the House and Senate want to go further.
“The governor’s revenue-neutral plan is well-intentioned, but we can do better," Leonard, who is seeking the Republican nomination for attorney general, said in a news release. "Michigan’s hardworking taxpayers deserve more. They deserve a plan that delivers larger savings and bigger refunds.”
But the tax cut proposals were introduced as some critics argue the state treasury is already facing tight revenues and the state needs money to invest in infrastructure, education and other needs.
Gilda Jacobs, president and CEO of the Michigan League for Public Policy, urged lawmakers to slow down amid what she described as "tax-cut fever" in an election year.
"We have so many really important things that we really need to take care of in this budget," Jacobs said, and she fears making tax cuts "we're going to be remorseful for later on."
Democratic leaders in both the House and Senate voiced support in principle for the proposed cuts.
“We’re glad to see House and Senate Republicans adopting some of the ideas that House Democrats have been advocating for the past seven years, ever since the governor and legislative Republicans increased taxes on working families and seniors," through a pension tax and other changes approved in 2011, said House Minority Leader Sam Singh, D-East Lansing.
"We still have a long way to go to make up for all of the tax deductions and credits that Republicans took away from Michigan taxpayers.”
Brandenburg proposed legislation last week to increase Michigan's personal exemption to $4,800 by 2021. But on Tuesday, he said he wanted to to increase the exemption by another $200 — to $5,000 — by that date. Unlike with earlier proposals, the exemption would then be indexed to inflation so it would continue to increase annually beyond that date.
Since coming to Lansing, "my main priority ... has been to fight for tax relief for Michigan families," Brandenburg said.
His tax exemption bill passed with the support of all five Republicans and an abstention from Sen. Steve Bieda, D-Warren, who said he supported the change in principle but wanted to study it further. But the dependent care tax credit bill passed in a 6-0 vote, with Bieda also voting yes.
That bill, sponsored by Sen. Margaret O'Brien, R-Portage, would allow a tax credit for the cost of care of a child 12 or younger or a senior or other adult who was not able to care for themselves. The amount of expenses that could be subject to the credit would be capped at $3,000 for one dependent or $6,000 for two dependents, with the percentage of costs that could be claimed based, in part, on, the tax filer's income.
Both the Snyder administration and Democrats appeared ready Tuesday to work with Brandenburg, though they made their comments before he ratcheted up his plan with a substitute Senate Bill 748, introduced as the committee hearing began.
Among other measures, the federal package doubles the standard federal deduction while reducing the personal exemption to zero. The state personal exemption of $4,000 per tax filer and dependent is claimed based on how many personal exemptions are claimed on the federal return. Treasurer Nick Khouri said that means state personal exemptions are lost under the federal plan, without a state fix.
Snyder and Calley announced a plan Jan. 8 to restore Michigan's personal exemption and hike it to $4,500 in 2021. That's $200 higher than the level it would have reached in 2021 because of inflationary increases already approved.
Calley said the plan would offset the unintended federal tax increase through the loss of the exemption while also countering smaller state-level tax increases that could result from the federal changes, while erring on the side of providing a small tax decrease to Michigan taxpayers. The total size of the unintended state tax increase the plan was intended to counter was estimated at close to $1.6 billion.
On Tuesday morning, Calley said he appreciated Brandenburg making the restoration and increase of the personal exemption a priority.
"He has always been a strong advocate and defender of the hardworking taxpayers," said Calley, who is seeking the Republican nomination for governor.
"I look forward to working with him."
Senate Minority Leader Jim Ananich, D-Flint, said Tuesday he supported the plan Brandenburg introduced last week and felt the personal exemption could go higher. He said he favors an increase in the personal exemption over a rollback in Michigan's personal income-tax rate — proposed by some Republicans — because the exemption concentrates the benefits on middle and lower-income earners.
"Michigan families need a break," Ananich said.
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