LANSING, MI – The Michigan Senate on Wednesday unanimously passed a bill that would hold Michigan residents harmless for a federal tax change and increase the personal exemption from a planned $4,300 in 2021 to $5,000.
The state is trying to address a potential glitch that came up when federal tax changes zeroed out the personal exemption, the amount every taxpayer gets to deduct for themselves, in favor of a higher standard deduction. Michigan’s tax code is tied to the federal tax code, and officials have raised the concern that without a change, Michiganders would end up missing out on their personal exemption.
The Senate wants to address that but also go farther, raising the planned $4,300 personal exemption for income taxes in 2021 to $5,000.
“Individual taxpayers in our state have not seen any meaningful or significant tax relief in over 20 years. It is long past due that we change this,” said Sen. Jack Brandenburg, R-Harrison Twp., sponsor of Senate Bill 748.
He estimated on Tuesday the tax change would save the average Michigan family of four $125. The Senate Fiscal Agency estimates it would decrease state revenues by $206 million per year starting in Fiscal Year 2022, and smaller amounts in the years leading up to that.
While Republicans portrayed it as a continuation of positive tax changes the federal government had initiated, Democrats portrayed it as revisiting the federal government’s mistakes.
“This is not some grand tax relief in this bill. It is simply a fix,” said Sen. Curtis Hertel, D-East Lansing.
While the version the Senate passed was largely the same as what the Senate Finance Committee approved Tuesday, one change added language saying the legislative intent was to “fully compensate from any loss of revenue to the state school aid fund” that resulted from the changes.
Senate Democratic Leader Jim Ananich, D-Flint, said that provision helped win over Democrats.
“It was very important. It was something that we’ve offered over and over again, and it was something that I think helped make it easier for our members to support it,” Ananich said.
Also, two bills that passed with the main one in committee – one to hold city income taxpayers harmless from the federal change and one to institute dependent care deductions – were not voted on along with the main bill on Wednesday.
While the Senate passed their version of the legislation, the House Tax Policy Committee held its first hearing on a series of House bills with similar aims.
The House plan, comprised of three bills, would incorporate the changes and raise the personal exemption to $4,800 by 2020 and provide a tax break for seniors. A single filer age 62 or older could claim a $100, refundable income tax credit and joint filers could claim a $200 one.
“Once this plan is fully vetted, and sunshine being the best remedy, that frankly this will be a bipartisan bill that both Republicans and Democrats can get behind,” said committee chair and one of the bill’s sponsors Rep. Jim Tedder, R-Clarkston.
Rep. Stephen Johnson, R-Wayland, questioned directing the tax credit just toward seniors.
“Is that a reason why we should give someone $100, just because they made it that long in life?” he asked.
Tedder said it was, because some seniors had been giving back to their communities for years.
Negotiations appear fluid as the House and Senate suss out their plans. House Speaker Tom Leonard, R-DeWitt, said he looks forward to talking with the Senate once the House passes its version of the legislation.
“I’m wide open. I’m willing to have that conversation, I’m willing to work with our partners in the Senate and see where the compromise, where we land,” Leonard said.
Any package would have to pass both chambers and earn a signature from Gov. Rick Snyder – who has backed a more modest personal exemption increase – to become law.