Snyder signs sweeping tax measure into law

By Kathy Barks Hoffman

Associated Press

LANSING, Mich. (AP) -- Gov. Rick Snyder signed a sweeping tax proposal into law on Wednesday that he says is key to his efforts to improve Michigan's economy.

The legislation cuts overall business taxes by about $1 billion in the fiscal year starting Oct. 1 and $1.7 billion the following year. It replaces the Michigan Business Tax with a 6 percent income tax on corporations with shareholders, which about two-thirds of Michigan businesses won't have to pay.

The measure also raises more money from individual taxpayers by increasing taxes on some retirees' pensions, shrinking tax breaks for low-income workers and eliminating many credits and deductions.

Democratic lawmakers say the business tax cuts come largely at the expense of retirees, increasing their tax bills by $300 million. Lower-income workers will see the Earned Income Tax Credit shrink from 20 percent of the federal credit to 6 percent. Some Democrats have chided Republicans for increasing taxes on seniors so they could give businesses big tax breaks. They also say the changes will hurt education, which faces deep cuts.

Snyder says revamping Michigan's tax code will help create jobs by making Michigan a more attractive place to do business. When the bill passed the Senate last week, he called it a "huge step forward in terms of job creation."

Overall, the bill is expected to reduce revenue by about $535.2 million in the upcoming fiscal year and by $438 million in 2012-13, with the school aid fund taking the brunt of the business tax cuts, according to the nonpartisan House Fiscal Agency.

Some retiree groups say extending the income tax to public pensions, which until now have been totally exempt, is unconstitutional. They've threatened to challenge the law in court.

The bill also keeps the current 4.35 percent individual tax rate in place until Jan. 1, 2013, when it will drop to 4.25 percent. The rate originally was supposed to drop to 4.25 percent on Oct. 1.

Published: Thu, May 26, 2011