Michigan Gov. Whitmer Vetoes Republicans' $2.5B Tax Cut Legislation

Gov. Gretchen Whitmer on Friday vetoed Republicans' proposal to permanently cut the state income tax, make more seniors eligible for deductions and restore a child tax credit, saying it would reduce funding for basic government services.

The veto, which was expected, may prompt negotiations between GOP legislative leaders and the Democratic governor, who has called for more targeted tax breaks for retirees and lower-wage workers.

The legislation “would strip away funding from kids, police, and communities, and according to nonpartisan analysis, blow a recurring, multibillion-dollar hole in basic government functions from public safety to potholes,” she wrote to lawmakers.

While Michigan has a $7 billion budget surplus, her administration says it is largely one-time revenue that cannot be counted on in future years.

The bill would have cut the personal income tax to 3.9% from 4.25%, lowered the age for filers to exempt up to $20,000 individually or $40,000 jointly to 62 from 67, allowed an additional exemption for retirement income not covered by the standard senior deduction and created a $500 per-child tax credit. It would have saved taxpayers $2.5 billion annually.

Republicans accused Whitmer, who is up for reelection, of missing an opportunity to help residents grappling with high inflation.

“This plan would have cut taxes for every single taxpayer in the state and provided bonus help to seniors and families with children. It did everything the governor promised she would do," House Speaker Jason Wentworth said. "But at the end of the day, she just couldn’t get herself to give that money back to the taxpayers who deserve it.”

Whitmer has proposed restoring Michigan’s earned income tax credit to 20% of the federal credit, up from 6%, and gradually repealing a 2011 change that reduced an exemption for retirement income for people born after 1945.

She said those qualifying for the earned income tax credit would get an additional $300 while retirees would save more than $1,000 under the plan that would cut revenue by roughly $750 million annually by the 2025 tax year.

Democrats had singled out the proposed income tax reduction for criticism and questioned the potential of jeopardizing billions in federal pandemic aid. Noting that Michigan does not have a graduated income tax, they said people in the bottom 20% of income (less than $23,000) would save $12 on average while those in the top 1% (at least $539,000) would save $4,901.

Whitmer cited opposition from groups representing education, public safety and mayors in her veto letter.

Republicans had said it is important to provide tax relief to all residents, saying an average family of four would save $1,200.

Also Friday, the governor vowed to veto legislation that would pause the state's per-gallon gasoline tax for six months, instead proposing to freeze the sales tax on gas.