Michigan Lawmakers Approve $1B Tax Break Families and Seniors

LANSING—Legislation approved by the Michigan Senate on Tuesday will provide relief for retirees by phasing out the retirement tax, and help lower-income families by significantly expanding the state’s Earned Income Tax Credit from 6% to a 30% match of the federal rate.

The “Lowering MI Costs” plan from Gov. Gretchen Whitmer is designed to put “money back in people’s pockets to help them pay for the bills and put food on the table,” according to a statement released by Whitmer, who is expected to sign the budget bill into law this week. 

“Michiganders need relief as inflation drives up costs and eats into their paychecks,” she said. “This is long overdue relief for Michiganders after the rug was ripped out from under them in 2011, when the retirement tax was slapped on and the Working Families Tax Credit was gutted.”

No More Retirement Tax

Rolling back the retirement tax is expected to save a half-million households an average of $1,000 a year. The tax—which was implemented under former Republican Gov. Rick Snyder’s administration—has been a top priority for Democrats for more than a decade. And this year, Sen. Kevin Hertel (D-St. Clair Shores) led the charge to bring its repeal to the finish line. 

“The retirement tax has robbed Michigan seniors of their promised retirement benefits for more than a decade. Eliminating it has been a top priority of mine since I began serving,” Hertel said in a statement. “Lowering MI Costs will provide targeted and equitable relief for retirees, and I am proud to be a part of restoring the broken promise of a safe, secure and happy retirement.” 

Relief for Michigan Families

Another key component of the legislation will expand the state-level Working Families Tax Credit to 30% of the federal Earned Income Tax Credit. For 700,000 Michiganders who often struggle the most to afford the basics, it’ll put an average of $3,150 back into their pockets come tax season, according to state estimates.

Sen. Kristin McDonald Rivet (D-Bay City) spearheaded the proposal to expand the tax credit, which earned the backing of more than 230 community groups across the state. 

“The Working Families Tax Credit is a proven, bipartisan tool to lift working families out of poverty and has widespread cross-sector support,” she said in a statement, labeling it the “perfect policy” to counter inflation and help small businesses struggling to retain staff.

No $180 Inflation Relief Checks

Though initially included in Whitmer’s budget proposal, Democrats were unable to garner the necessary support from Republicans to send $180 checks to all taxpaying Michiganders.

“We were hoping that we would be able to get Republican support for that. But unfortunately, they were unwilling to do so,” said Senate Majority Leader Winnie Brinks (D-Grand Rapids).

Those $180 checks were unveiled in early February as part of Whitmer’s plan to help residents with rising inflation costs. According to the bill text, the checks would have only been sent out if the bill was implemented by mid-April of this year. Republicans for weeks had refused to side with Democrats to make that immediate effect happen—creating a legislative stalemate.  

Instead, state officials now expect to use the $800 million that would’ve been spent on those relief checks to keep state revenues high enough to trigger an income tax reduction from 4.25% to 4.05%. Brinks said the automatic income tax reduction was “likely” after this week’s vote. 

Moving Michigan Forward

The spending package also includes ongoing funding for the state’s business incentive efforts, sending $500 million a year in corporate income tax revenue to the fund through 2026, totaling up to $1.5 billion over three years. That fund, known as the Strategic Outreach and Attraction Reserve, has been used to attract large corporate business projects to the state. 

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The Lowering MI Costs plan also invests $50 million of surplus tax revenue into the state’s Housing and Community Development Fund, which prioritizes projects offering veterans, seniors, people with disabilities, and working families safe, affordable places to call home.

State officials said another $50 million was earmarked for state grants designed to turn underutilized office, commercial, or community space into places for people to enjoy—like affordable housing, parks, outdoor dining spaces, community gathering places and more. 

“From our kids to our seniors and everyone in between, this plan will have a major impact,” said Sen. Mallory McMorrow (D-Royal Oak). “This historic legislation tackles long standing Democratic policies to provide significant support to our fellow Michiganders who need it the most.” 

After the vote, Brinks labeled the legislation as the “biggest, broadest tax relief plan Michiganders have seen in decades.”

She added: “This has the power to make a generational impact on the financial wellbeing of individuals and families in our state. With less than two months in the majority, Democrats are already delivering on our long-held promises to help household budgets stretch further.” 

The Associated Press contributed to this report.