Michigan taxpayers will see even more savings next year due to the state's high revenues, with the state treasurer announcing Wednesday that the income tax rate will temporarily be lowered to 4.05% from 4.25%.
The income tax rate reduction is expected to save taxpayers a total of $650 million next year and will equate to savings of approximately $50 for a Michigan taxpayer making about $40,000 annually, Michigan Treasurer Rachel Eubanks told The Associated Press.
“Our economy is in a much stronger position. We’ve got this really low unemployment rate, we’ve got people working, they’re making money," Eubanks said. “All of those factors kind of came together to create a perfect storm.”
The announcement has been expected for months, after the House Fiscal Agency predicted in January that Michigan’s revenues had been high enough to automatically trigger a drop in the income tax rate under a law enacted in 2015 by the Republican-led Statehouse.
The 2015 law provides a mechanism to reduce the income tax rate when the percentage increase in the general fund exceeds the inflation rate during a fiscal year.
Michigan Attorney General Dana Nessel, a Democrat, released an opinion Tuesday ruling that the rate reduction will only last one year before reverting back to the normal 4.25% in 2024. Nessel wrote that “the Legislature intended the relief to taxpayers to be only temporary.”
Republicans who passed the law have argued that the rate reduction was meant to be permanent. In a joint statement with Senate Republican Leader Aric Nesbitt and other Republican leaders, former Gov. Rick Snyder, who led Michigan from 2011 to 2019, criticized the opinion as an “unreasonable overreach of what was agreed upon."
“The income tax trigger was intended to be a permanent reduction activated when state government had a large surplus,” Snyder said.
Eubanks said her office is bound by Nessel's opinion. The nonpartisan House and Senate fiscal agencies will meet with Eubanks at the May Consensus Revenue Estimating Conference to determine next year's economic forecast and the likelihood of a rate reduction for the 2024 tax year as well.
“We’d been forecasting a mild recession this year, then it has started to look like the recession may not actually happen,” Eubanks said. “So where we will land in terms of what the 2024 rate will look like is something that we’re going to be digging in deeper to."
Michigan taxpayers will also receive other savings under a tax relief plan passed by Democrats this month. The package will provide relief to retirees by phasing out taxes on public and private pensions and would help lower-income families through a significant expansion of the state’s earned income tax credit from the current 6% to a 30% match of the federal rate.
Democratic Gov. Gretchen Whitmer had unveiled a plan to send $180 checks for every tax filer, which would have cost an estimated $800 million and avoided triggering the income tax rate reduction. But the plan failed after Democrats were unable to garner the necessary support from Republicans.
Whitmer also proposed a $79 billion budget in January that would be Michigan's highest ever after news that the state's surplus could exceed $9 billion by the end of the year.
