Economic development

The issue: Michigan is engaged in intense multi-state competition to entice EV, microchip and other manufacturers that can secure federal tax credits to onshore production in the U.S.

Where Michigan stands: More than a year ago, the state lacked a large fund to lure companies with cash incentives or support for site preparation and infrastructure upgrades. It now has one after Ford Motor Co. announced EV facilities in Tennessee and Kentucky. A factor, albeit just one of many, was Michigan’s lack of build-ready mega sites. e new Strategic Outreach and Attraction Reserve Fund is being used to prep land and to dangle money at automakers and battery manufacturers amid the transition from gas engines.

COMMENTARY: A look at some of the successes and opportunities: Page 11 e Legislature approved an additional $150 million deposit into the SOAR account last week. Gov. Gretchen Whitmer has told Crain’s that the fund should have money on an ongoing basis rather than the process being “project by project, appropriation by appropriation.” Legislation that would have used taxes generated from SOAR-funded projects to replenish the account every year died at year’s end, but a new push is expected. SOAR, proponents say, helps the state compete for large-scale expansions at a particularly crucial time.

Taxes

The issue: Michigan has an estimated $9.2 billion budget surplus, some of which Gov. Gretchen Whitmer and lawmakers plan to give back to taxpayers dealing with high in ation.

Where Michigan stands: e overall tax burden is relatively low. e e ective state and local tax rate, taxes paid by residents as a percentage of the state’s share of net national product, is 8.6 percent, according to the Tax Foundation. at is fth-lowest in the U.S. e Citizens Research Council of Michigan has said that while it may not feel like it, state government takes a smaller bite out of the average Michigander’s paycheck than it did 20 years ago.

What is next: Whitmer and Democrats who now narrowly control the Legislature have two major tax proposals, have moved to unwind portions of a tax overhaul that Republicans enacted in 2011.

One change would boost Michigan’s earned income tax credit, now 6 percent of the federal credit, to 30 percent, retroactive to the 2022 tax year. It is refundable, which means people with less money get a refund if they do not owe taxes. Expanding the credit has support from a broad coalition of business, religious, health and social services groups, which say 750,000 lower-income householders need help paying bills.

e second proposal would repeal the “retirement tax,” bringing back income tax exemptions on pension income for 500,000 households. It was wrong to raise taxes on pensioners who had expected their benets to be tax-free, Whitmer said, and “we are in a position to make it right.”

Republicans, who pushed for broader tax relief last year without support from Whitmer, are open to an EITC expansion.

Commentary

Other ideas:

Republicans also support a senior tax cut, one they say would cover more types of income and people.

Sen. Thomas Albert, a Lowell Republican, said simply reversing the changes that impacted pensioners “is not a fair way of doing it” because retirees with government bene ts bene ted the most under the old tax structure. Doubling exemptions for all seniors and lowering the age to qualify is a way to “achieve the same end and help all residents and not just a select few.” ey have successfully pushed for it to be retroactive so residents can le returns or amended returns this year and qualify.

The debate comes as policymakers prepare for a possible trigger of an automatic cut to the 4.25 percent individual income tax rate because general tax revenues boomed last scal year.

Citing the surplus, Whitmer told Crain’s she does not anticipate proposing to o set lost revenue from a retirement tax repeal with higher taxes on some businesses, like she tried in 2019. She also supports creating a research-and-development tax credit to attract companies in the electric vehicle battery, semiconductor and life sciences.

Senate Minority Leader Aric Nesbitt said a child tax credit should be enacted, too.