INCOME TAX RATE REDUCTION;

PERSONAL EXEMPTION INCREASE

House Bill 5699 (reported without amendment)

Sponsor:  Rep. Edward McBroom

House Bill 5700 (reported without amendment)

Sponsor:  Rep. Holly Hughes

Committee:  Tax Policy

Complete to 6-4-12

A REVISED SUMMARY OF HOUSE BILLS 5699 & 5700 AS REPORTED FROM COMMITTEE

Each bill would amend the Income Tax Act.

The state income tax rate is currently 4.35%.  It is scheduled to drop to 4.25% on January 1, 2013.  House Bill 5699 would instead reduce the rate to 4.25% on October 1, 2012, three months earlier.  (MCL 206.51)

House Bill 5700 would increase the personal exemption to $3,950 from October 1, 2012, until January 1, 2014; and to at least $4,000 beginning January 1, 2014.  (Proposed MCL 206.30a)  As now, the personal exemption would be multiplied by the number of personal or dependency exemptions allowable on a taxpayer's federal income tax return.

The personal exemption currently is $3,700. That figure is adjusted for inflation annually, beginning January 1, 2013, rounded to the nearest $100.  The bill specifies that the personal exemption would be the inflation-adjusted number derived from current law or the specific figure cited above, whichever is greater.  At some point, the current exemption plus inflation will exceed $4,000, and that higher amount will be the amount of the exemption.  [An exemption reduces the amount of income subject to tax.]

The two bills are not tie-barred, meaning they need not both be enacted for either to take effect.

FISCAL IMPACT:

These bills would reduce State revenue by an estimated $103 million ($91 million for GF/GP and $12 million for the School Aid Fund) for FY 2012-13.  Also, depending on inflation, these bills would reduce State revenue by an estimated $36 million in FY 2013-14, $32 million in FY 2014-15, and $8 million in FY 2015-16.

For the distribution of the revenue loss, see the chart on the following page.

Estimated Fiscal Impact of HB 5699 and HB 5700

millions of dollars

School

Fiscal Year

GF/GP

Aid Fund

Total

2012-13

-91

-12

-103

2013-14

-28

-9

-36

2014-15

-24

-8

-32

2015-16

-6

-2

-8

                                                                                           Legislative Analyst:   Chris Couch

                                                                                                  Fiscal Analyst:   Rebecca Ross

                                                                                                                           Jim Stansell

This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.