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State income tax rate reduced as treasury closes books on last fiscal year

USA tax form 1040 for US individual tax return. Close-up
orelphoto - stock.adobe.com
USA tax form 1040 for US individual tax return. Close-up

Michigan has officially closed the books on the last fiscal year with a surplus that triggers an income tax cut of 0.2% for the 2023 tax year.

The state’s Annual Comprehensive Financial Report showed Michigan ran a $9.2 billion surplus, which drops the state’s income tax rate from 4.25% to 4.05% — a reduction of about $50 for an average family, the state treasury said.

But there’s a controversy over the duration of that tax cut. Attorney General Dana Nessel said in an official opinion this week that the revenue surge is the result largely of one-time federal recovery assistance. So, she said, the tax rollback is a one-time break that will have to be re-visited after the next book-closing.

Michigan Treasurer Rachel Eubanks, who requested the Nessel opinion, said the duration of the tax cut is important to know as the state charts out spending plans.

“And from there, we can build it into our revenue forecast, of which, obviously, the state budget is based on,” Eubanks told Michigan Public Radio. “So it’s an incredibly helpful piece of certainty to have in the process when we’ve got so much other uncertainty that goes into us building our revenue forecast.”

Republicans in the Legislature are already pushing back. Senate Minority Leader Aric Nesbitt (R-Porter Township) told Michigan Public Radio that the attorney general doesn’t get to decide whether the tax rollback is temporary or permanent. He said the tax cut is required under a 2015 state law.

“The Legislature would need to vote to raise the income tax and they know how politically unpopular that is, and so they’re trying to use every game possible and what they’re doing in my reading of it is not legal,” he said.

Nesbitt said he expects a lawsuit will be filed, but it’s not clear how the timing would play out.

Rick Pluta is Senior Capitol Correspondent for the Michigan Public Radio Network. He has been covering Michigan’s Capitol, government, and politics since 1987.
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