Michigan income tax rate to drop to 4.05 percent, but just for one year

• Michigan income tax rate will fall from 4.25 percent to 4.05 percent
• Rate cut will last only one year, however, according to an attorney general legal opinion
• Whitmer celebrates one-year cut, Republicans say it should be permanent

March 30: Michigan is cutting income taxes for 2023. How much will you save?

LANSING — Michigan's individual income tax rate will fall from 4.25 percent to 4.05 percent for the 2023 tax year, state Treasurer Rachel Eubanks confirmed Wednesday. 

The cut will be short-lived, however. 

The income tax rate will return to 4.25 percent in 2024, Eubanks said, citing a legal opinion released this week by Democratic Attorney General Dana Nessel that infuriated Republicans who contend the cut should be considered permanent. 

Michigan's "strong economic position" led to the soaring state revenues that triggered the cut called for in a 2015 road funding law, said Eubanks, an appointee of Democratic Gov. Gretchen Whitmer. 

Related:

• Dana Nessel calls income tax cut temporary. Republicans express fury
• Without facilities funding, Michigan schools turn to COVID-19 relief for repairs
• Whitmer signs Right-to-Work repeal, prevailing wage restoration

“When Michiganders file their 2023 state income taxes in 2024, they will see the rate adjustment in the form of less tax owed or a larger refund," Eubanks continued in a statement. 

The 2015 law in question raised fuel taxes and registration fees to help fund road repairs. But to win over conservative lawmakers, then-Republican Gov. Rick Snyder agreed to include a provision that would force an income tax rate cut in any year where the state was flush with excess tax collections. 

A report released late Wednesday by the state Budget Office shows Michigan was indeed flush with cash in 2022, ending the year with $14.2 billion in general fund and general purpose revenues, up from $12.5 billion the prior year. 

As of Oct. 1, the state was sitting on a roughly $7.5 billion general fund surplus. Officials in January predicted that surplus could reach $9.2 billion by fall, but Whitmer and the Legislature have already agreed to spend some of that money, and the governor's record $79 billion budget proposal would use most of the rest. 

Every Michigander who pays income taxes will see some benefit under the one-year rate cut announced Wednesday, but the state's flat rate means wealthier people will save the most money on a dollar-to-dollar basis. 

A single filer who earns $30,000 would save about $50, while a filer who earns $1 million would save more than $2,000.

Whitmer last year vetoed GOP bills that would have permanently cut the state's income tax rate. But on Wednesday, she celebrated the one-year reduction that Nessel cited. 

“As a result of our growing economy and strong fiscal management, Michigan’s state income tax will decrease to its lowest in 15 years,” Whitmer said in a statement. “Our state is headed in the right direction, bolstered by low unemployment, projects bringing jobs and supply chains home, and fiscally responsible, bipartisan leadership."

Republicans on Tuesday blasted Nessel for her legal opinion that the tax cut will last only a year. Snyder and Republican legislative leaders who approved the legislation eight years ago said the cut was intended to be permanent. 

“The level to which Gov. Whitmer and Attorney General Nessel will go to deny the working people of Michigan tax relief has reached a new low," current Senate Minority Leader Aric Nesbitt, R-Porter Township, said in a statement. 

Republicans say Nessel's opinion could spur lawsuits. But because Democrats now control the Legislature, it's likely any legal challenge would have to come from outside groups.   

"In the last 24 hours, we’ve heard from taxpayers, small businesses, and elected officials regarding this latest attempt by Governor Whitmer and Democrats to deny an income tax cut required by state law," Nesbitt spokesperson Jeff Wiggins said Wednesday. 

"At this point, we’re keeping all options on the table in our fight to defend Michigan’s working families."

Cutting the income tax rate to 4.05 percent will cost the state about $650 million in lost revenue, according to the Michigan Treasury. 

The one-year rate cut is the latest development in a long-running tax policy battle in Lansing, where Whitmer last year vetoed multiple GOP bills before working this year with new Democratic majorities to approve more targeted tax breaks for low-income workers and retired pensioners. 

Tax relief legislation Whitmer signed into law earlier this month also proposed $180 “inflation relief” checks for Michigan taxpayers, but Republicans blocked those checks in order to preserve the expected income tax rate reduction.