This Week At the State Captiol

by Doug Paterson, Director of State Policy, Michigan Primary Care Association

As predicted, this week was filled with drama around the passage of a major tax package that implements proposed changes to the Michigan Business Tax (MBT). The legislation repeals the MBT and replaces it with a 6%  income tax on C-corporations. It also imposes what become a very controversial  tax on pensions.  The income tax rate will also remain at 4.35% through 2012 and then drop to 4.25% on January 1, 2013, where it will remain. The rate had been scheduled to fall by 0.1 percentage point a year starting October 1 until it reached 3.9%.

There was a small victory related to the Earned Income Tax Credit (EITC).  Instead of being eliminated, the final version of the tax bill drops from a state credit equal to 20% of a filer’s federal EITC to 6%.

The $3,700 personal exemption would begin phasing out for those with incomes of $75,000 or more ($150,000 or more for married couples). The $2,300 special exemption for seniors and those receiving unemployment compensation would end. The $600 per child credit for child care expenses would end. And the Homestead Property Tax Credit would be drastically scaled back.

The vote in the Senate was orchestrated to be a tie, with 7 Republicans voting with the 12 Democrats against the bill.  Lieutenant Governor Calley broke the tie to pass the bill.

The Revenue Estimating Conference will take place Monday, May 16, where it is predicted a $500 million to $600 million surplus will be projected for 2012.   It is likely that soon after, leadership of both houses will establish targets for each departmental budget and conference committees will begin meeting to produce final budgets.  It is expected that these budgets will all be rolled into two “omnibus” bills and sent to each house for passage. There is still a high expectation this will all occur by the end of May.

As always, we will keep you posted.

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