Governor Rick Snyder began a 184-day initiative to “chart a new course for Michigan,” earlier this year as a strategy to bring economic growth back to the state. The overhaul includes changes to business tax law in Michigan that Gov. Snyder says, “recognizes (small and medium-sized businesses) for the job creators they are.”
The new plan is hoped to bring new businesses to the state as well as provide existing businesses the opportunity to create new jobs.
As part of the overhaul, Gov. Snyder followed through on his campaign promise to end the Michigan Business Tax put into place four years ago. The new law lays out changes in the tax code that reduces business tax, which is offset by increases in personal income tax. An estimated 100,000 small and medium-sized businesses will benefit from the new law by no longer paying the Michigan Business Tax.
While the tax law reduces business tax liability, personal income taxes are being applied to retirement and pension income, resulting in an estimated $1.42 billion in revenue for the state.
Overall, the new law will create a net loss of about $220 million in state revenue.
In place of the Michigan Business Tax, larger companies will pay a 6% state tax. Before signing the bill into law, Gov. Snyder commented that, “Something fundamentally had to happen to make us a great state again.”
Pensions exempt from the new personal income tax include military and public pensions and social security benefits. The new personal income tax on retirement and pension income is controversial. Tax exemptions to pension income are allowed based on age and income amount. A private pension for joint filers that does not exceed $90,240 is exempt from the new tax. An exemption is also provided for individuals born before 1946. Younger individuals, born between the years 1946-1952 will have a tax exemption for private pension income up to $20,000 for individuals filing as single and up to $40,000 for joint filers.
No exemptions are provided to private pension income for individuals born after 1952.
Democrats argue that the reduced business tax does not guarantee new job growth, a fact acknowledged by Governor Snyder.
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