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Gov. Gretchen Whitmer and Democratic legislative leaders unveiled a new plan to send $180 checks to Michigan taxpayers. The payments are part of a larger plan proposing permanent tax cuts that target low-income earners and retirees.
If state lawmakers approve the changes, they would mark the biggest transformation of Michigan's tax system in more than a decade. Here's a look at the proposals:
Expanding the "Working Families Tax Credit"
The federal Earned Income Tax Credit (EITC) benefits low-income workers by essentially subsidizing their wages. Like many states, Michigan has a state EITC — what Whitmer calls the Working Families Tax Credit — set at a share of the federal credit. At 6%, Michigan's EITC is among the least generous in the country.
In the 2019 tax year, about 738,380 Michigan families received an average credit of $150, according to the Michigan League for Public Policy. That could increase to an average credit of $750 under Democrats' plan to increase the state EITC to 30% of the federal credit beginning in the 2022 tax year.
That would cost around $550 million, about an increase of $440 million, according to Anne Kuhnen, a tax policy analyst for the Michigan League for Public Policy.
For years, Whitmer has called for the repeal of pension tax changes that were made law in 2012 under former GOP Gov. Rick Snyder.
Whitmer said Monday the latest proposal would provide equal exemptions for a certain level of retirement income, whether it comes from public or private retirement plans. That's a new feature and an apparent effort to win support from Republicans, who complained earlier Democratic proposals would favor public pensioners over private ones.
The term "pension tax" is a bit of a misnomer. The legislation Snyder signed did not create a new tax, but removed total and partial tax exemptions for income from public and private pensions, respectively.
Snyder also reduced a tax credit seniors received against property taxes.
Whitmer's pledge has been to restore those exemptions and credits, though her comments Monday suggest she no longer plans to restore full exemption from state income tax for all public pensions, which for some retirees provide income of well more than $100,000 a year.
Democrats say they expect the changes will save 500,000 Michigan households an average of $1,000 a year, for a total annual cost of half a billion dollars.
The proposed pace of the changes — initially to be phased in over three to four years — has been accelerating as the state's financial fortunes have improved.
$180 "inflation relief checks"
Under Democrats' proposal, the checks would go to each taxpayer in the state with those filing taxes jointly receiving one $180 check.
This is the only component of Whitmer's tax plan to provide relief to every taxpayer.
Clara Hendrickson fact-checks Michigan issues and politics as a corps member with Report for America, an initiative of The GroundTruth Project. Make a tax-deductible contribution to support her work at bit.ly/freepRFA. Contact her at email@example.com or 313-296-5743. Follow her on Twitter @clarajanehen.
This article originally appeared on Detroit Free Press: Whitmer plan to cut taxes for seniors, low income earners