Whitmer, Democrats pitch $180 inflation relief checks for tax relief

Lansing — The state of Michigan would send tax filers $180 inflation relief checks under a plan announced Monday and agreed to by Gov. Gretchen Whitmer and Democratic leaders in the state Legislature.

The $800 million in inflation relief checks would be combined with an increase to the Earned Income Tax Credit from 6% to 30% of the federal credit, retroactive to 2022, and a decrease in taxes on all pensions. The pension tax repeal would differ from earlier proposals by bringing equal relief to both private and public pensioners, instead of just creating a full repeal of the state's 4.25% income tax on pensions from public sector employers.

Under the plan, the $180 refund checks would be issued based on a tax return filed with the state, meaning married couples filing jointly would get a single $180 check. An unmarried couple living together and filing their taxes separately would each get a $180 check.

The Michigan Department of Treasury is still working through the details of the exact level of tax relief pensioners would see. It's not yet clear what the total tax relief package — the pension tax repeal, EITC increase and inflation relief checks — would cost this year.

Whitmer's administration wouldn't say whether the $800 million in inflation relief checks would be coming from fiscal year 2022 general fund revenue. If it is, the decreased revenue would likely allow the state to avoid an automatic income tax rate cut to 4.05% because of excess tax revenue.

"When you add up all the different pieces of relief, what you see here is a real effort to make sure that we are strategically helping people that are struggling," Whitmer said at a Monday press conference with Senate Majority Leader Winnie Brinks, D-Grand Rapids, and House Speaker Joe Tate, D-Detroit.

Whitmer, Brinks and Tate announced the broad outline of their plan at a Friday press release and provided further details Monday, after weeks of negotiations over how best to deliver tax relief as the state boasts a $9.2 billion surplus. State budget officials estimate the state's general fund has a $5.1 billion surplus, while the school aid fund has a $4.1 billion surplus.

"We are in a position to help offset some of those costs with this smart, one-time investment that will help people," Brinks said.

None of the items in the tax relief package should come as a surprise to lawmakers expected to vote on the deal in the coming days, Tate said.

"Michiganders spoke with a clear voice in November," the House speaker said. "They want leaders focused on solving problems and helping their families get ahead."

Whitmer said the $180 inflation checks would "dwarf" other proposals — an apparent reference to the income tax cut trigger — which would deliver much less to anyone making under $90,000 if the 0.2% income tax rollback predicted were to take effect. She also argued it would deliver immediate relief, while any sort of income tax cut wouldn't take effect until next year. But Whitmer needs Republican votes to ensure the overall package gets two-thirds support in the state Senate to take immediate effect.

Under Michigan's current average gas price of $3.37, the inflation relief checks would pay for about 53 gallons of gas or three to four tanks.

GOP rebuffs '49 cents per day'

Senate Minority Leader Aric Nesbitt, R-Porter Township, said the proposal does not go far enough in providing an equal and substantive application of tax relief.

"Frankly, when the state is sitting on a $9 billion surplus, we should be doing more than handing out a one-time annual rebate check that equals 49 cents per day," Nesbitt said of the $180 rebate.

House Minority Leader Matt Hall, R-Richland Township, said the governor was "moving our way" in making the tax relief more equitable. But he wasn't sold on the plan.

"The governor once again refused to say whether she’ll attempt accounting tricks to obstruct the permanent income tax cut that’s headed to every Michigander and small business," Hall said in a statement. "She either isn’t familiar with the details of her own plan, or she’s trying to hide a secret tax hike from the people."

Republicans are largely in support of an increase in the Earned Income Tax Credit, but have opposed the pension tax repeal plan because it wouldn't deliver relief for all types of retirement income. Whitmer's announcement Monday that relief would benefit both private and public pensions equally appears to be an attempt to assuage those concerns.

Additionally, Republicans have rebuffed plans to sidestep a 2015 income tax cut trigger. The trigger, put in place by a past Republican majority, is based on general fund revenue and some fiscal experts have predicted the state's glut of revenue in recent years would be enough to hit the trigger and lower the tax rate from 4.25% to 4.05% at the closing of the state's books for the 2022 fiscal year.

Funding, tax battles ahead

Last week, sources said the Democratic majority planned to avoid the tax cut trigger by transferring $800 million from fiscal year 2022 general fund revenue to the state's business incentive fund, the Strategic Outreach and Attraction Reserve fund, and then set up an ongoing automatic deposit of funding into the SOAR fund. The automatic deposit into programs within SOAR —the Strategic Site Readiness and Critical Industry Program — would eliminate legislative oversight mechanisms currently in place over the program.

Republicans pushed back against the proposal, arguing the effort would divert tax relief to private businesses, sidestep an income tax cut and eliminate critical oversight of the state's business incentive program.

On Monday, Whitmer's spokesman, Bobby Leddy, said the current tax relief deal does not include business incentive funding.

"The governor in her State of the State mentioned that we need funding for economic development, consistent funding, so that businesses can come here, attract jobs and additional investment," Leddy said. "We're going to be pursuing that down the line also."

If the income tax cut language from 2015 is triggered, there appears to be a brewing debate over whether the decreased tax rate would last in perpetuity or if it would have to be reevaluated against revenue each year.

Republicans have maintained the trigger language signed into law under Republican former Gov. Rick Snyder would create a permanent income tax cut, but Leddy said Monday the language is "unclear."

Some have argued language in the law requires a reevaluation of revenue "for each tax year beginning on and after January 1, 2023" to determine if the tax rate should dip below 4.25%.

"Given that language, it would make sense that it would stay (at 4.25%) and then you analyze it," Leddy said. "It would be fiscally irresponsible if you had a one-time windfall to then cut taxes in perpetuity."

The Senate Fiscal Agency last month, however, described the trigger as requiring a "permanent reduction in the IIT (individual income tax) rate."

Small Business Association of Michigan President and CEO Brian Calley, the former lieutenant governor under Snyder, said his understanding of the law and subsequent fiscal analyses indicate the tax cut would be permanent.

Calley said Monday the idea that the tax rate would return to 4.25% each year to be reevaluated was a "brand new legal theory" out of sync with the calculations from which the language stemmed.

"That trigger was set at a rate so high that the state had to have so much extra revenue that it made it undeniable that it could afford the decrease" in perpetuity, Calley said.

eleblanc@detroitnews.com

Staff Writer Craig Mauger contributed.