Michigan income tax would drop under House-passed bill

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18-03-2025

The Michigan House passed legislation Tuesday to slash Michigan's income tax rate, a move celebrated by Republican lawmakers as a way to provide economic relief to Michigan families and condemned by some Democrats as a boon for the rich even as some of their colleagues supported the tax cut.
House Bill 4170 would cut Michigan's income tax rate from 4.25% to 4.05% effective Jan. 1, 2025. Most Michigan income tax revenue goes to the state's general fund — the main source for funding state government — but income tax dollars also go to the state's fund for schools and roads.
Bill sponsor state Rep. Kathy Schmaltz, R-Jackson, said today that too many Michigan families face impossible financial choices. "Families need relief now more than ever," she said in a speech on the House floor Tuesday ahead of the vote. "Every little bit helps." State Rep. Bryan Posthumus, R-Rockford, called the bill a step in the right direction but said Tuesday in a speech that Michigan should look to states without any income tax. "Our state doesn't need more revenue, it needs less government," he said.
Some Democratic lawmakers blasted the proposed income tax cut. "This bill is a wolf in sheep's clothing. The wolf being the wealthy receiving yet another tax cut," said state Rep. Morgan Foreman, D-Pittsfield Township.
State Rep. Jasper Martus, D-Flushing, said with Michigan's flat income tax, the wealthy stand to benefit the most.
"If we really want to provide robust relief for most of the folks that we represent, we should start by asking the wealthy to pay more so that all of us can pay a little bit less," he said.
Every Republican lawmaker supported the tax cut legislation. Most Democrats opposed it, but seven voted for it: state Reps. Kelly Breen of Novi, John Fitzgerald of Wyoming, Matt Koleszar of Plymouth, Denise Mentzer of Mt. Clemens, Reggie Miller of Van Buren Township, Angela Witwer of Delta Township and Mai Xiong of Warren.
The move to permanently reduce Michigan's income tax rate follows a legal battle over a provision in the state's tax law that triggered a recent temporary cut. A decade ago, Republican lawmakers added a formula to Michigan's tax law cutting the state's income tax rate when general fund revenues exceed inflation. That happened in the 2023 tax year when the income tax rate temporarily went down to 4.05% before returning to 4.25% for the 2024 tax year.
GOP lawmakers insist that the law should have made the tax cut permanent. But a Court of Claims judge dismissed a lawsuit from Republican state lawmakers and business advocacy groups making that argument. A three-judge Michigan Court of Appeals panel unanimously upheld the lower court's decision. The coalition of GOP lawmakers and business groups appealed to the Michigan Supreme Court which dismissed the case.
House Bill 4170 would amend the law to explicitly state that any future income tax cut triggered when general revenues exceed the cap would be permanent.
Reducing Michigan's income tax rate from 4.25% to 4.05% for the 2025 tax year would cut income tax revenues by an estimated $539.3 million for the fiscal year that began Oct. 1, 2024 and will end Sept. 30, 2025, according to the House Fiscal Agency. It would cut income tax revenues by an estimated $713 million for the fiscal year ending Sept. 30, 2026 and $727.6 million for the fiscal year ending Sept. 30, 2027.
Michigan has a flat income tax as required by the state's constitution, meaning workers in the state pay the same income tax rate regardless of their income. Most states have a graduated income tax with a higher tax rate for those with higher incomes, according to research by the Institute on Taxation and Economic Policy published in January. According to the tax policy organization's index measuring the impact of each state's tax structure on income equality, Michigan has the 35th most regressive state and local tax system in the U.S., the group's January 2024 "Who Pays?" report found. "Income disparities between high-income taxpayers and other families are larger in Michigan after state and local taxes are collected than before," the report states.
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Michigan Department of Treasury spokesperson Ron Leix declined to comment on the impact of a tax cut on different income groups. The department opposes the proposed tax cut, according to a summary of the bill from the House Fiscal Agency. Foreman cited an Institute on Taxation and Economic Policy analysis on the proposed tax cut she said found 64% of it would go to the wealthiest 20% while those making under $27,000 would see an average tax cut of $11.
While Republican state lawmakers have championed an income tax cut as a way to provide financial relief to Michigan families, Democratic state lawmakers want to focus on expanding support for new parents and have proposed a new child tax credit and cash assistance program for pregnant mothers and babies.
"For far too many, raising a child has become a financial headache and a constant source of worry as they struggle to keep up with rising costs and this has a profound impact on the health and well-being of parents, our kids and our economy," said state Sen. Mallory McMorrow, D-Royal Oak, during a press conference last Wednesday.
The legislation to cut Michigan's income tax rate passed in the House Tuesday next heads to the Democratic-led Michigan Senate for consideration.
Contact Clara Hendrickson at [e-mail] or 313-296-5743.
This article originally appeared on Detroit Free Press: Michigan House Republicans OK tax cut with some Dem support