Michigan's income tax rate would gradually drop from 4.25 percent to 3.9 percent within three years under a plan approved by a legislative committee Wednesday, the first shot in a likely months-long battle over how best to return some of a budget surplus to residents.
Legislation headed to the Republican-controlled Senate would reduce the rate by a tenth of a percentage point each year starting in 2014, followed by a half-percentage point cut in 2017. Taxpayers would save $371 million in the next budget year and up to $873 million when the reduction is fully phased in, according to the nonpartisan Senate Fiscal Agency.
Five Republicans on the Senate Finance Committee voted for the bill, saying the economy does better when more money is in taxpayers' hands. Two Democrats opposed it by contending that income tax cuts have no discernible impact on economic growth and questioning the harm to government services.
A surplus carrying over from last fiscal year and higher amounts expected to come in this budget year and next total nearly $1 billion, though Gov. Rick Snyder's administration cautions that it mostly is a temporary boost in revenues, not an ongoing one.
The Republican governor supports providing tax relief this year and is expected to propose a plan in his budget presentation next week. In his recent State of the State address, he mentioned helping "hard-working folk" who are "worried about their bills."
GOP legislative leaders have indicated they could support an income tax cut but have been open to other ideas as well.
Besides an income tax decrease, other possibilities include sending taxpayers a rebate and upping their personal exemption against the income tax. Democrats also have unsuccessfully pushed to reinstate a tax exemption on pension and other retirement income and to restore a credit for low-income earners, children and homeowners.
Also Wednesday, some House Republicans introduced legislation that would gradually reduce the income tax rate to 4.05 percent by 2016. Starting in 2017, the rate would automatically drop a tenth of a percentage point each year income tax revenue increases $300 million or more.
Author: DAVID EGGERT, Associated Press
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