By Susan J. Demas
The fiscal 2012 state budget is perpetually in motion.
But after last week’s revenue deal among Gov. Rick Snyder, Senate Majority Leader Randy Richardville (R-Monroe) and House Speaker Jase Bolger (R-Marshall), the pace is quickening. And the odds of lawmakers wrapping the budget by Snyder’s preferred May 31 deadline have increased.
The Senate Appropriations Committee is slated to pass all 16 budget bills (think one budget bill for each department — Community Health, Human Services, Corrections, etc.) this week. The House Appropriations Committee is likely to meet next week and kick out its budgets. And the full Senate and House are scheduled to pass all of their budgets next week, as well.
The next step is sending the budgets to conference committees, which are composed of three members apiece from both the House and Senate Appropriations committees. After the conferees hammer out compromises, both chambers have to give budgets an up-or-down vote. Lawmakers also will pass tax changes and corresponding revenues for the budget, including Snyder’s flat 6-percent corporate income tax plan.
The biggest changes stemming from the leadership deal are:
* A much smaller tax on pension income. Snyder’s original budget called for an income tax on all public and private pension dollars, which was supposed to raise $900 million to help offset a $1.8 billion business tax cut. The new pension tax only brings in $300 million, largely because it exempts those now 67 and older with public pensions. Private pensions of those age 67 or older won’t be taxed either if they’re below the current exemption threshold of $45,120 for single filers and $90,240 for joint filers.
A three-tier system for taxing retirement income is established, with younger Michiganders bearing the biggest burden. For those ages 60 to 66, retirement income won’t be taxed up to $20,000 for single filers and $40,000 for joint filers. Income above that level will be taxed at 4.35 percent, dropping down to 4.25 percent on Jan. 1, 2013. When they turn 67, they will qualify for a different income exemption that allows seniors to write off any income up to $20,000 for single filers and $40,000 for joint filers.
Those 59 and younger will have retirement income taxed at 4.35 percent. They also will qualify for the senior income exemption upon turning 67.
* Michiganders will pay a 4.35 percent income tax for another year. Under the law passed in 2007 that raised the income tax from 3.9 percent, it was supposed to start rolling back Oct, 1, 2011, which is the first day of fiscal 2012. The rate rolls down one-tenth of a percent per year, each Oct 1, until Oct 1, 2015, when it goes from 3.95 percent to 3.9 percent. With the new deal, the rate will slide back to 4.25 percent on Jan. 1, 2013 — and that’s where it will stay.
* There will be $150 million more in budget cuts, which have taken different forms in House and Senate Appropriations subcommittee budgets. On the Senate side, $25 million from Snyder’s Business Attraction and Economic Gardening Program was axed from the general government budget bill and there’s $31 million in savings from potentially privatizing food service, mental health, prison store and education functions in the Department of Corrections.
On the House side, community colleges were cut 15 percent (saving $43.9 million) and the clothing allowance for Family Independence Program (FIP) children with working parents was scrapped in the Department of Human Services budget (saving $9.9 million).
* There are changes to the homestead property tax. Those making up to $20,000 would get a 100 percent credit, instead of 60 percent now. Low-income seniors at this income level already get a 100 percent credit and they’ll maintain it. For households making between $20,001 and $30,000, the tax credit will range between 100 percent and 60 percent. For those above $30,000, it will be 60 percent. The maximum credit will remain at $1,200 and would be phased out for income between $41,000 and $50,000.
Senate Appropriations Chairman Roger Kahn (R-Saginaw Township) said the process is moving forward, although he stressed that many details are still in flux.
“I think the process so far is similar to what we have done before, but it’s different in the accelerated pace,” he said. “There remain parts that need to be resolved — more so than in past years. So we have a lot of work before us within the chambers and within the conference committees.”