Updated, 2:19 p.m., 6/3/21 with additional comments
The GOP-led Michigan Senate Finance Committee on Wednesday convened to discuss and vote on various bills seeking to reform the state’s tax system — including rolling back the corporate income tax.
SB 392, introduced by Sen. Jon Bumstead (R-Newaygo), aims to cut the corporate income tax from 6% to 4.9% by 2022.
The corporate income tax cut would be the first since 2011, when then-Gov. Rick Snyder, a Republican, signed into law legislation that eliminated the Michigan Business Tax and replaced it with a flat corporate income tax of 6%. That plan was spearheaded by then-Lt. Gov. Brian Calley, who is now the president of the Small Business Association of Michigan (SBAM).
The bill passed 5-2 and was sent to the full Senate.
In a press release, Bumstead expressed his support for the bill, saying it will help local businesses and Michiganders recover from the COVID-19 pandemic and keep Michigan competitive with surrounding states.
“I believe it is important that we do all we can legislatively to help local businesses stay open and keep great-paying jobs in Michigan,” Bumstead said. “The COVID-19 pandemic has been an economically challenging time, and I don’t want to see Michigan lose good jobs and good people to neighboring states with a lower tax rate. Lowering the tax rate to 4.9% makes Michigan competitive with neighboring states and states across the nation.”
According to an analysis from the nonpartisan Senate Fiscal Agency, the bill would reduce state General Fund revenue by about $23 million in Fiscal Year (FY) 2021, which ends on Sept. 30. For FY 2022, it would mean $217 million less and it would be a $240 million cut per year in subsequent fiscal years.
Gilda Z. Jacobs, president and CEO of Michigan League for Public Policy, criticized the bill, saying the bill would implement “ineffective and inequitable tax cuts that favor corporations and wealthy residents over everyone else.”
“Simply put, now is not the time for broad tax cuts for big businesses, as we need investments in our people, like child care, roads and water systems, education, state safety net services and more,” Jacobs said. “We understand that the pandemic has hit our people, our businesses and our economy hard, but as we look to pull out of this health crisis, we believe that strategic investments in what Michigan workers and their families need to thrive will benefit our businesses and state budget as well.”
Since the implementation of Snyder’s 2011 tax plan, businesses have paid about $1.7 billion less in taxes annually. The tax cut also shifted the tax burden from business to individuals. Between 2011 and 2012, for example, individual income tax revenue skyrocketed by $1.4 billion.
In 2018, business taxes accounted for 1.9% of state revenue, dramatically less than the 12.4% it accounted for in 2012. Income taxes accounted for 70% of the revenue in 2018 and 54.6 in 2012.
The bill also has been introduced and passed after the COVID-19 Relief Act was signed into law by President Joe Biden that says states using the aid may not use the funds “to either directly or indirectly offset a reduction” in net tax revenue. States may cut taxes, but in order to do so, they have to use their own funds to offset budget cuts.
More than 20 Republican attorney generals from across the country wrote a letter to U.S. Treasury Secretary Janet Yellen requesting clarification on the provision and critiquing it for “confusing” language.