House OKs pension tax repeal, major 30% EITC boost amid intense GOP uproar

The Michigan House of Representatives moved on a massive tax package Thursday which, among many things, would roll back taxes on retirement pensions and issue $180 checks per Michigan taxpayer.

But that was not without extreme Republican opposition, which at one point culminated in a screaming match on the House floor over a lack of following chamber rules and decorum.

Lawmakers in the House gave the OK Thursday, Feb. 9 to an overarching Democrat-proposed tax cut plan which would implement a tiered repeal on taxed retirement pensions while raising the Earned Income Tax Credit from 6% to 30%.

The move, as detailed within House Bill 4001, would also send $180 rebate checks to each of Michigan’s single filer taxpayers; joint filers would get $180 cumulatively. Given it would cost the state $800 million to enact, it’s being looked at as an end run around enacting a 2015 trigger for a permanent income tax rollback.

What caused the screaming match mid-Thursday came about quickly.

Democratic leadership, after hours of waiting, put HB 4001 up for a vote abruptly and sailed past pre-planned speeches given by members of both parties. That immediately angered Republicans, who began screaming at Speaker Pro Tem Laurie Pohutsky, D-Livonia, for a clarification of the rules.

The yelling continued until eventually the House closed their voting board, with Rep. Mike Mueller, R-Linden, having voted with Democrats to pass the bill. The ending vote was 56-53, with Rep. Dylan Wegela, D-Garden City, having voted against the bill.

Wegela told reporters the reason for his opposition vote was that he was not a fan of “corporate handouts” contained within the bill. Mueller left the House floor before voting had fully concluded but after casting his own vote.

When asked about the kerfuffle, House Speaker Joe Tate, D-Detroit, told reporters Thursday: “There were some members on the other side, they know what they did, I’ll just leave it at that.”

“We’re moving quickly to provide immediate relief to Michigan residents, to provide tax relief that’s much needed,” Tate said. “So, I’m willing to move fast in order for this to happen.”

Tate added that Republican concerns of secrecy and surprises were unnecessary, saying that the conference report had been public since Wednesday.

“It was all there,” he said. “It was all out for, and publicly, for people to read and sift through.”

That wasn’t a good enough explanation for Rep. Andrew Fink, R-Hillsdale, who was one of the members scheduled to speak but shot down. He was part of the handful of Republicans to stay standing on the floor to demand clarity on chamber rules, later questioning what House Democrats were afraid of.

“What was I going to say in the four minutes it was going to take me to give a speech that was going to make them so sad that – what was going to happen? They weren’t gonna get the votes? Seriously,” Fink said. “They’re one floor speech away from losing the votes on this bill, that’s designed to take away a tax cut from the people, to give money to corporations, and take it from mainstream businesses?”

That ire appeared to boil over into the Senate, where Republicans – seemingly in retaliation – motioned to adjourn the upper chamber as Senate Democrats were caucusing.

Though the gavel is typically held by Democrats, who control the chamber, both Lt. Gov Garlin Gilchrist and Sen. Jeremy Moss were not on the floor when Sen. Dan Lauwers, R-Brockway, motioned to adjourn. Sen. Joe Bellino, R-Monroe – who serves as associate president pro tempore in the Senate – quickly approved the motion before Democratic lawmakers were even out of caucus and aware of what happened.

Senate Minority Leader Aric Nesbitt, R-Porter Township, said it was his hope that next week lawmakers could “come back, hit the reset button, and legislate through a more transparent process.”

“Democrats took it upon themselves to carry out the bidding of Gov. Whitmer to raise taxes on every Michigander without committee hearings, without debate, without negotiations, and without Republican input,” he said in a statement. “To make matters worse, the disrespect that was shown to House Republicans this afternoon by locking them in and denying the opportunity to debate such a consequential vote was an insult to this institution.”

Though unexpected, the move will only delay a potential vote on the plan to next week. Lawmakers are expected to reconvene Tuesday to again consider the bill, which is an amalgamation of previously pitched House and Senate Democratic plans that finally reached a form of consensus this week.

In addition to tax relief, the bill also contains funding for economic and housing developments, the latter of which would see funding in perpetuity.

How, and how quickly, to address repealing a tax on retirement pensions seemed to be the sticking points between House and Senate Democrats’ plans throughout the process.

But that’s now smoothed out under HB 4001, which will implement a tiered phase out across the next four tax years. Those with police and fire pensions, however, will be completely completely tax exempt in the 2023 tax year.

Tate told reporters following session Thursday that the bill comprised “the largest tax relief we’ve seen in Michigan’s history.”

“Everything that we’ve been talking about … whether you’re a Democrat or Republican, we know that Michiganders need immediate relief,” he said. “We know that. … And we knew that we needed relief for our pensioners and our retirees.”

For everyone else:

  • A phase down on taxed public retirement pensions would begin in 2023
  • Under the plan, retired Michiganders born between 1945 and 1959 could deduct up to 25% of the maximum amount of retirement or pension benefits in the 2023 tax year;
  • Those deductions would then jump to 50% for those born between 1945 and 1963 in the 2024 tax year;
  • A final decline of 75% in the 2025 tax year would occur for those born between 1945 and 1967
  • Beginning in the 2026 tax year, retirement pensions no longer be taxed and all taxpayers would be able to elect to claim the maximum deduction of retirement and pension benefits

Public and private pensions would be treated identically, with equal thresholds for deductions. While 401k mandated contributions and employer mandated contributions will be exempt up to the first $113,000 of income, elective contributions and 457 plans will not be exempt whatsoever.

The phase-in of the exemption against retirement income – as well as changes to how police and fire retirement benefits are treated – are estimated to cost the state about $58 million in the 2022-23 fiscal year. That would jump to $233 million in the coming 2023-24 fiscal year, $408 million in the 2024-25 fiscal year and about $515 million in the 2025-26 fiscal year.

Fiscal estimates indicate the costs would be expected to grow over time as new retirees become eligible and distributions from retirement accounts increase.

The two chambers had long settled on raising the EITC from 6% to 30% and making the move retroactive to the 2022 tax year. That didn’t change when the bill was reported out of a conference committee mid-day Wednesday.

The EITC aids low- to moderate-income workers and families get a tax break according to the Internal Revenue Service, though the amount returned is relative to if the filer has children, dependents, is disabled or meets a slew of other criteria.

The Michigan Department of Treasury estimates it would cost approximately $925,000 to retroactively distribute EITC refunds for the 2022 tax year. Those costs would include issuing, printing and mailing checks to taxpayers, as well as processing returns, handling correspondence and any other activities associated with the effort.

Overall the EITC increase, beginning in the 2022 tax year, is expected to reduce the state’s individual income tax revenue by about $385 million per year beginning in the 2022-23 fiscal year.

Michiganders who aren’t retired and don’t qualify for the EITC will also see a bit of money come their way.

Under HB 4001, $800 million comprising corporate income and other business taxes would be deposited into a new fund – called the Michigan Taxpayer Rebate Fund – for the 2021-22 fiscal year. That fund would be used to issue a rebate of $180 to each eligible taxpayer for the 2022 tax year.

Should a person be married but did not file a joint return for the 2022 tax year, the rebate would be $90; if married and filing jointly, the rebate would be $90 for each spouse.

The bill defines an eligible taxpayer to mean an individual taxpayer who was a resident of Michigan as of Dec. 31, 2022, and who filed an income tax return for the 2022 tax year on or before Oct. 18, 2023.

There is, however, a catch: The bill would need to take effect before April 18, which is 2023′s deadline to submit 2022 tax returns as established by the Internal Revenue Service.

Democrats, therefore, need six Senate Republicans to give the bill immediate relief for these refund checks to occur. Without, the checks could not be sent prior to that April deadline and it would seem imminent the automatic income tax rollback would be triggered for all Michiganders.

Rep. Bryan Posthumus, R-Cannon Township, told reporters he couldn’t speak for his Senate counterparts, but that given Thursday’s conduct “I fully expect the Senate to refrain from giving immediate effect.”

Should that occur, taxpayers could see their income taxes drop from 4.25% to 4.05%.

The bill also would amend portions of the state’s Income Tax Act to distribute money – including corporate income and other businesses taxes – to various funds in future fiscal years. Typically, this money would be deposited into the general fund.

For the next three fiscal years – that being fiscal years 2022-23 through 2024-25 – up to $1.2 billion would initially be deposited into Michigan’s general fund.

After that amount, up to $50 million would be put into the Michigan Housing and Community Development fund with another, up to, $50 million being put into a newly created Revitalization and Placemaking Fund.

That fund would invest in projects that would rehabilitate vacant and blighted buildings, historic structures and vacant properties. It would also work to develop permanent place-based infrastructure associated with social zones and traditional downtowns, outdoor dining, and place-based public spaces.

A final deposit, up to $500 million, would be put into the Strategic Outreach and Attraction Reserve Fund under the bill. Following three fiscal years, all additional funding in these areas would drop off except for the $50 million to the housing fund.

Remaining revenue would then be deposited into the general fund.

Earmarks of the Corporate Income Tax revenue expected to reduce general fund revenue by $800 million in the 2021-22 fiscal year, up to $600 million in the 2022-23 fiscal year through the 2024-25 fiscal year, and up to $50 million per year thereafter beginning in the following fiscal year.

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