UPDATE: Michigan House, Senate OK one of Michigan's largest tax overhauls by slimmest margin possible

Day 131: This is one in a series of posts assessing key developments during Gov. Rick Snyder's self-imposed 182 days to chart a new course for Michigan by July 1. For earlier posts go to mlive.com/stateofchange.

The Republican-run Senate this afternoon approved Gov. Rick Snyder's tax overhaul that finances $1.7 billion in business tax relief through changes in the individual income tax that will generate $1.5 billion on a full-year basis.

But the GOP's 26-senator majority could only muster the minimum 19 votes required for passage. Lt. Gov. Brian Calley broke the 19-19 tie. The House, which approved the plan on April 28, will vote whether to concur on the Senate changes to possibly yet today.

Snyder didn't quite take a victory lap before the vote, but following committee approval in the morning Snyder told an applauding convention of accountants down the street from the Capitol that "the MBT is nearly dead."

The tax plan is the central plank in Snyder's program to revitalize a Michigan economy now on the upturn, but which has been hammered by a decade of job loss.



Sen. Mark Jansen, R-Gaines Township, said the tax vote wasn't easy, but "we need to change the path that we're on" and help businesses that "know how to create jobs."



Some 95,000 Michigan firms, "pass-through" entities such as partnerships and sole proprietorships, would no longer have to pay a business tax. The remaining 41,000 current MBT filers, "C-Corporations" that file a federal tax return, would pay a 6-percent state tax on their profits.



Sen. Rebekah Warren, D-Ann Arbor, said the plan was neither simple, fair nor efficient and represents a "significant tax shift" from business to those "who are the least among us," seniors and low-income wage earners.



"Why are we putting all this on Grandma and Grandpa," added Sen. John Gleason, D-Flushing. "This tax should not be put on our seniors. They've already paid a great debt."



The proposal finances the business tax relief through a variety of income tax changes, including taxing the pensions of those born after 1945.



Retirees born before 1946 would enjoy the same tax exemption on retirement income they have now. Those born 1946-52 would have a pension exemption of $40,000 for joint-filers, $20,000 for single filers. Those born after 1952 would pay income tax on all of their pension income. For all classes of retirees, Social Security and military pensions would remain exempt from state tax.



"We aren't talking about everyone in the state of Michigan," Jansen said, arguing 478,000 households would keep their current exemptions and 80,000 in the 1946-52 category would have taxable pensions. There are 149,000 pensioners in the state born after 1952, he said.



The plan reduces the benefit of the Michigan Earned Income Tax Credit, currently an average of $430 for more than 700,000 low-income wage earners, by two-thirds.



The household income threshold for those qualifying for the Michigan Homestead Property Tax credit, currently $82,650, would be reduced to $50,000. That means some 270,000 income tax filers would no longer be eligible for a credit that provides a maximum $1,200 benefit.



Democrats made Republicans vote on a series of amendments that sought to restore the income tax deductions and credits eliminated under the plan, including a $2,300 exemption for senior households.



Preserving the 19-19 vote that allowed Calley to break the tie required all 12 Democrats to vote "no." If one had declined to vote, there's no tie and the measure would have failed.



Democrats agreed to all vote in exchange for a promise that a good chunk of the extra tax revenue anticipated for FY 2012 will mitigate cuts in K-12 education.



Contact Peter Luke at (517) 487-8888 ext. 235 or e-mail him at pluke@boothmichigan.com.