INCOME TAX RATE REDUCTION;

PERSONAL EXEMPTION INCREASE

House Bill 5699 as enrolled

Public Act 223 of 2012

Sponsor:  Rep. Edward McBroom

House Bill 5700 as enrolled

Public Act 224 of 2012

Sponsor:  Rep. Holly Hughes

House Committee:  Tax Policy

Senate Committee:  Finance

Complete to 8-30-12

A SUMMARY OF HOUSE BILLS 5699 & 5700 AS ENACTED

Each bill amended the Income Tax Act, one to speed up a planned reduction in the tax rate, and the other to increase the personal exemption.

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

House Bill 5700 increases the personal exemption to $3,950 as of October 1, 2012, until January 1, 2014, and to at least $4,000 beginning January 1, 2014.  (Proposed MCL 206.30a) 

The personal exemption is multiplied by the number of personal or dependency exemptions allowable on a taxpayer's federal income tax return.  [An exemption reduces the amount of income subject to tax.] 

(The exemption for 2012 will be an amount as annualized by the Department of Treasury and rounded to the nearest one dollar, based on $3,700 for 9 months and $3,950 for 3 months.  For 2013, the personal exemption will be $3,950.)

The personal exemption previously was $3,700. That figure was to be adjusted for inflation annually beginning January 1, 2013, rounded to the nearest $100.  House Bill 5700 instead specifies that the personal exemption will now be the inflation-adjusted number 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 then be the amount of the exemption. 

FISCAL IMPACT:

These bills will 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 are estimated to 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 below.

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.