LANSING, MI — Half a million retired Michiganders could allegedly save an average of $1,000 per tax year under a Democratic-backed plan unveiled Thursday.
The plan seeks to raise a tax credit for low- and moderate-income working families while rolling back tax on certain retirement pensions. As part of that, proponents say another 700,000 at-need households could see an average of $3,000 in returns if implemented as written.
Speaking to a packed room on Capitol grounds Jan. 12, Gov. Gretchen Whitmer said the plan was meant to address high inflation felt by families and would strive to “putting money back in peoples’ pockets.”
It comes on the back of House Republicans releasing their own tax plan, which they claim would benefit more retirees’ across Michigan and have retroactive component so that filers could apply for relief in the 2022 tax year.
“This is our opportunity to do right by the people of Michigan,” Whitmer said. “This is an opportunity for us to show that the things we said we’re going to do here? We’re going to get them done.”
As part of the plan released Thursday, Democrats are focused on two major, long-time policy issues: Raising the state’s Earned Income Tax Credit – being referred to along the lines as a tax credit for working families – to at least 20% and rolling back a tax on the pensions of retirees.
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Democratic plans between the House and Senate, however, do slightly vary.
House plans only account for the family tax credit to increase to 20% beginning in the 2023 tax year and staying at that level; Senate Democrats, though, are calling for a slow increase of the credit beginning with a bump to 15% in the 2023 tax year.
For each subsequent tax year, the credit would increase by 5% until plateauing at 30% in the 2026 tax year, seemingly staying that way in perpetuity.
“This is way bigger than numbers. This legislation is about making a real difference, which is what we all were elected to do,” said Lt. Gov. Garlin Gilchrist, of the package. “This is going to help that ensure those seniors and retirees living on fixed incomes don’t have to choose between getting prescriptions or getting food.
“This will help children focus on their schoolwork, because their parents or caregivers are able to actually get them school supplies and backpacks to carry them in.”
Retirement pension tax cut plans between the two chambers are identical and offer a tiered approach to relief. They would allow retired Michiganders born between 1945 and 1959 to deduct up to 25% of the maximum amount of retirement or pension benefits in the 2023 tax year.
Those deductions would then jump in the subsequent tax year to 50% for those born between 1945 and 1963 in the 2024 tax year, and then 75% in the 2025 tax year for those born between 1945 and 1967.
Limitations and restrictions of joint returns would be based on the date of birth of the older spouse filing the return.
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The changes only effect retirees with a public retirement pension, a criticism Republicans had of Democrats’ tax cut plan when speaking to reporters Wednesday.
Sen. Kevin Hertel, D-Saint Clair Shores, however later clarified on Twitter that his version of the tax would effect private and public pensions, making the two plans slightly different in effect.
When pressed on the fact the House Democrats’ plan does not offer relief for all seniors, Whitmer seemed to indicate she would be open to negotiating on that aspect.
“The legislation is not on my desk yet,” she said. “There are lot of things that are going to happen between now and when we get there ... there will be a lot of negotiation and a lot of steps along the way. Certainly, that conversation will continue.”
Whitmer also did not indicate whether making the EITC retroactive to the 2022 tax year would be part of the negotiation process, nor how much the tax cuts could end up costing the state.
Republicans, too, have yet to put a dollar amount on their own plan.
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