Income Tax Rate Set to Rise for Millions

Michigan's personal income tax rate is set to increase again in 2024 after decreasing slightly last year thanks to high state revenues, the state's Department of Treasury announced Wednesday.

The Wolverine State has been the stage of a legislative battle over its income tax rate in the past few months, with Republicans fighting to keep the previously approved cuts in place but clashing against Governor Gretchen Whitmer's administration.

In 2015, the then Republican-controlled Michigan legislature passed a law allowing the income tax rate to decrease whenever general fund revenues grow faster than inflation. Last year, the state income tax rate was reduced to 4.05 percent, from 4.25 percent in 2022.

"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," Rachael Eubanks, Michigan's state treasurer, said last year in a statement announcing the cut.

This year, the state decided the rate should return to 4.25 percent, as Michigan's general fund revenues dropped by 8.3 percent over the past year to $14 billion, down from $15.3 billion in 2022, according to the state's Department of Treasury.

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"State law requires that a very specific calculation be conducted annually following release of the state's ACFR to determine the individual income tax rate," Eubanks said Wednesday.

"As anticipated, we found that the conditions were not present for a rate reduction for the 2024 tax year. The tax rate will remain at 4.25 percent," she continued.

Michigan Republicans have been fighting this outcome for months, saying the cut implemented last year should remain in place according to the 2015 law and be considered the starting point for new assessment.

But Whitmer and Michigan Attorney General Dana Nessel, both Democrats, said the tax cuts should last for one year and then be reassessed based on the original rate of 4.25 percent, not the reduced rate of 4.05 percent.

A lawsuit from a group of organizations, individuals, and two Republican lawmakers—Senator Edward McBroom and Representative Dale Zorn—was initially dismissed by Michigan Court of Claims Judge Elizabeth Gleicher, who sided with Whitmer and Nessel, but the group, which says the reduced rate put $714 million back in residents' pockets, is seeking to appeal the decision.

Patrick Wright, the vice president for legal affairs at the Mackinac Policy Center—who is representing the plaintiffs in the lawsuit—told Newsweek they have already filed a bypass application to the Michigan Supreme Court.

"Essentially, we asked to hop the Court of Appeals and go straight to the Supreme Court and have them decide the case," Wright said. "What they did instead was, they sent us back down to the Court of Appeals and ordered them to issue a decision by March 11."

"So by March 11, the Court of Appeals will decide whether the tax cut is permanent or not, and then whatever side loses has two weeks from then until March 25 to file an application with the Michigan Supreme Court," he continued.

Wright said his plaintiffs have "the better case." He added: "If you think about it in political terms, you had Republicans in charge of the legislature and the governorship at the time. That is the party that generally prefers tax cuts as opposed to spending."

"And there's some history from the 1983 tax cut that indicates that had they meant this to be a one-year-only tax cut, then they would have written the statute in a different way," Wright said.

Newsweek contacted Whitmer's and Nessel's offices for comment Thursday, via a website form and email, respectively.

Earlier this month, the Internal Revenue Service announced tax relief for individuals and businesses in parts of Michigan affected by the extreme weather events of August 24. It offered similar relief this week to those in California affected by the January storms.

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Taxpayers in the areas designated by the Federal Emergency Management Agency—Eaton, Ingham, Ionia, Kent, Livingston, Macomb, Monroe, Oakland and Wayne counties—now have until June 17 to file their tax returns and obtain relief.