(From the Michigan AFL-CIO)
You may have noticed a big change in your Michigan tax refund this year. You are not alone. The tax changes adopted by Gov. Snyder and the Michigan Legislature in 2011 have now taken effect in 2012, and working families, seniors and the poor are seeing the real damage done to their livelihood.
Overall, taxes on businesses will be reduced by $1.6 billion, while individual income taxes will
increase by $1.4 billion. Working families, low-income families and seniors will face the most significant
changes, in large part because of the loss of, or reductions in, a number of individual income tax
exemptions, credits or deductions.
- A new “Pension Tax” took effect in 2012 resulting in $340 million in new taxes. Pension and retirement income exclusions are changed and now depend on the taxpayer’s date of birth. Under the new law, a senior couple with a $30,000 pension born between 1946 and 1952 would pay $430 in higher taxes. A retired couple born after 1952 with the same pension would pay $1,165 in higher taxes. These are typically people on fixed incomes who have planned for and are accustomed to the prior tax arrangement where pensions were not taxed. Now they have to figure out how to live on a hundred less dollars a month.
- The Homestead Property Tax Credit is another hit to working families and seniors. The credit is not available on homes with greater than $135,000 taxable value and the income formula has changed to make it more difficult to get the credit. This will cost Michigan taxpayers $270 million.
- Working families are seeing tax credits disappear, resulting in a greater tax burden and a smaller refund. The $600 Child Tax Credit is gone, along with unemployment compensation credits, credit for taxes paid to city income tax, and credits for contribution made to college foundations, public radio, public libraries, homeless shelters, food banks, community foundations, medical savings accounts and credit for helping pay your child’s college tuition. This tax hike costs Michigan taxpayers $104 million.
- To make matters worse, EITC, the earned income tax credit, has been reduced from 20 percent of the federal tax credit to 6 percent, taking money from the working poor. This is money that many families rely on just to be able to keep working. They use it to keep the car repaired or other essential things.
Just a final note on Michigan tax system. Michigan was already ranked in the top ten of regressive tax states and these changes have made it worse. A regressive tax (on food and clothing are examples) takes a larger percentage from low-income people than from high-income people. This means that it hits lower-income individuals harder.
In the meantime, these self-created deficits in Michigan are causing our public schools to collapse; our public colleges are forced to cut financial aid and increase tuition; our communities are eliminating recreation programs, senior programs and are cutting into police and fire protection; and our roads and bridges are crumbling.
Michigan is long overdue for tax fairness policies and we must endorse and elect candidates who will make this happen.