Michigan Republicans OK $2.7B tax cut. Whitmer wants a $500 rebate.

LANSING — Tensions flared in the Michigan Capitol Thursday as Republicans and Democratic Gov. Gretchen Whitmer pushed competing tax cut plans to give back some of the state’s growing budget surplus.

All sides stressed the need to help Michiganders whose spending power has been curbed by inflation, but their negotiating stalemate showed no signs of letting up. 

Whitmer unveiled a new $500 tax rebate for working families, a one-time approach she said could help Michiganders without causing long-term budget pain. 

Related:

• Michigan GOP, Whitmer push college tuition aid plans. How their plans differ.
• Michigan to spend $100 million to open new child care programs, tackle pain points
• Here’s when you will get your $400 car insurance refund in Michigan

House and Senate Republicans approved a much broader $2.7 billion tax cut plan, renewing election-year pressure on the Democratic governor, who rejected an earlier $2.5 billion proposal in March.

The new GOP legislation, introduced Thursday and approved in mostly party-line votes, includes an Earned Income Tax Credit expansion Whitmer had sought.It would also cut personal income taxes to 4 percent from 4.25 percent in 2023, create a $500 child tax credit and expand relief programs for seniors and disabled military veterans. 

The plan, now heading to Whitmer’s desk, could save a Michigan family of four about $1,300 a year, according to Senate Majority Leader Mike Shirkey, R-Clarklake, who said he was “damned proud” of the legislation.

In a floor speech, Shirkey called Whitmer's $500 rebate proposal a "payoff" and a form of "pandering," arguing the governor's early pandemic orders forced massive federal spending and made her "complicit" in inflation.  

"There's no leadership occurring right now to try and provide the kind of policies necessary to make Michigan attractive to both human capital and financial capital," Shirkey told reporters after a 22-14 vote in the Senate.

"And that's what Republicans are doing."

Sen. Curtis Hertel Jr., D-East Lansing, called Shirkey's comments "absolutely silly" and said “trying to blame the governor for international inflation may be one of the craziest things" he's heard during his nearly eight years in the Legislature. 

"I am willing to sit down in any room in this capital" to negotiate tax cut legislation and “help families,” Hertel said on the Senate floor. "But until then, this is nothing but sound and fury, signifying nothing."

Thursday's legislative action was the latest front in an ongoing battle in Lansing, where Whitmer and GOP leaders have spent months proposing competing tax relief ideas but have not agreed on any concrete plan.

Whitmer, who has proposed smaller tax cuts, bashed the new GOP proposal before details were even made public. 

It's "not a real plan," the governor told reporters Thursday morning, according to Gongwer,  a subscription news service. "It is a massive move that they're making, using some one-time funds without really regard for what it's going to mean about our ability to invest in skills, to lure investment in Michigan, to invest in education.”

Federal funds helped grow the state budget from $58 billion in 2019 to $63 billion in 2021, and Michigan is projected to generate roughly $30 billion in tax revenue this year. 

Nonpartisan analysts project budget surpluses of up to $18 billion over the next two fiscal years. 

Earlier Thursday, Whitmer sought to get ahead of Republicans by releasing the $500 tax rebate proposal that she said would provide immediate help, rather than forcing families to wait until next tax season.

"Let's take advantage of additional revenue to put money in people's pockets and deliver real relief right now to taxpayers," Whitmer wrote in a letter to legislative leaders, building on her earlier $757 million plan that would also expand the Earned Income Tax Credit and repeal the state’s so-called pension tax, a three-tiered tax on retirement income implemented in 2011. 

Senate Democrats formalized Whitmer’s rebate proposal later Thursday, adding an additional $100 per child for households with combined incomes of less than $250,000.

"You can't buy gas with a tax cut in the future," Hertel, the ranking Democrat on the House Appropriations Committee, said in a floor speech. The governor’s proposal would “help families now,” he said. 

Republicans mocked Whitmer’s plan, with House Tax Policy Chair Matt Hall, R-Marshall, calling it a “one time gimmick.”

In addition to the income tax cut, the GOP plan would increase the state's $5,000 personal exemption by $1,800 and create $500 per-child tax credits. 

The legislation would also expand the Earned Income Tax Credit for lower income workers from 6 percent to 20 percent of the federal level, mirroring a Whitmer proposal that would benefit more than 700,000 Michigan families. 

The GOP plan would also exempt more senior income from taxation — up to $43,600 for joint filers in the first year, then adjusted for inflation — and expand a property tax exemption for disabled military veterans to include partially disabled veterans as well. 

“What we’re talking about is something that will give people real relief, and it’s permanent,” Hall told reporters before the 69-34 House vote. “This is a real plan.”

By advancing bills that were not negotiated with the governor, Republicans effectively backed Whitmer into a corner for a second time in three months, daring her to reject tax cuts as she faces re-election in November.

Whitmer in March vetoed a $2.5 billion Republican plan that included some of the same elements, including the income tax cuts, child tax credits and expanded senior exemption.

She also rejected legislation that would have suspended Michigan's 27.2-cents-per-gallon gas tax for six months. Whitmer instead suggested a "short-term pause" of some kind, but that hasn't happened despite record gas prices.

In her March veto letter, Whitmer cited nonpartisan projections that the GOP tax cut plans would have reduced funding for road repairs and potentially forced more than $1.8 billion in annual spending cuts by the state government despite budget surpluses.

That's because federal law prohibits states from spending stimulus funds directly on tax cuts. Whitmer's new rebate proposal would not impact future budget years because it would be a one-time spend.

It would be the second one-time payment of the year for Michigan residents.  

At Whitmer's urging, the Michigan Catastrophic Claims Association this spring agreed to refund $3 billion in surplus auto insurance payments. Insurers were required to send those $400 per-vehicle checks to motorists by May 9. 

Michigan budget officials are set to convene Friday in Lansing to finalize revenue projections that will guide summer negotiations that must be completed by the time the new fiscal year starts Oct. 1. 

In a Tuesday report, the nonpartisan Senate Fiscal Agency projected Michigan will end the current fiscal year with a massive $10.1 billion surplus, and then end next fiscal year with another large $8.2 billion surplus. 

While tax revenues continue to climb, real Michigan personal income, adjusted for inflation, is expected to drop by 4.4 percent this year, according to the agency, meaning paychecks will not go as far.

“Michiganders need real relief right now," Whitmer said in her Thursday letter to legislative leaders, urging collaboration. "Let’s work together to put money in people’s pockets and lower costs."