Michigan Governor and Democrats Announce Historic Tax Break Plan with Retroactive Credits and Repeal of Retirement Tax

Michigan Governor Gretchen Whitmer and Democratic leaders have reached an agreement on a new tax break plan, which they claim will provide the most extensive tax cut to Michiganders in decades. The deal includes inflation relief checks for all taxpayers, an expansion of the Earned Income Tax Credit for low-income workers, and the repeal of the state’s 4.25 percent tax on retirement income. The proposed tax plan was developed after several weeks of closed-door negotiations, and it is expected to be put to a vote in the legislature as early as next week, as reported by Bridge Michigan on February 3, 2023.

Although more details about the plan are yet to be announced, sources familiar with the deal stated that the Earned Income Tax Credit would be expanded to 30 percent of the federal level, retroactive to this year, and the potential tax rebate checks may be sent out to Michigan residents as early as this spring.

The tax break plan comes after Democrats gained control of both chambers of the Legislature for the first time in 40 years, although their narrow majorities will require some Republican support for the legislation to take effect immediately. Some Republicans have raised concerns that the proposed tax plan could circumvent an income tax rate cut triggered by a 2015 law, which Democrats have not ruled out the possibility of avoiding. The proposed repeal of the pension tax is estimated to save around 500,000 households an average of $1,000 per year.