INCOME TAX:  PHASED-IN REDUCTION TO 3.9%

House Bill 5729

Sponsor:  Rep. Nancy E. Jenkins

Committee:  Tax Policy

Complete to 6-11-12

A SUMMARY OF HOUSE BILL 5729 AS INTRODUCED 6-7-12

The state income tax rate is 4.35%, and under current law is due to drop to 4.25% on January 1, 2013, and remain at that level.

The bill would amend the Income Tax Act (MCL 206.51) so that, instead, the rate would drop to 4.2% as of January 1, 2013, and then continue to decline as follows:

o                   4.15%  as of January 1, 2014

o                   4.10%  as of January 1, 2015

o                   4.00%  as of January 1, 2016

o                   3.95%  as of January 1, 2017

o                   3.90%  as of January 1, 2018

FISCAL IMPACT:

As written, the bill would reduce income tax revenue beginning in FY2012-13.  Because the percentage of gross income tax revenue earmarked to the School Aid Fund is a function of the tax rate, the percentage will increase as the rate declines to hold the SAF harmless. Thus, the entire impact of the rate cut will affect GF/GP revenue. The annual estimated revenue reductions are summarized in the following table:

	TY2013	TY2014	TY2015	TY2016	TY2017	TY2018	TY2019
	FY12-13	FY13-14	FY14-15	FY15-16	FY216-17	FY17-18	FY18-19
Tax Year Income Tax Rate	4.20%	4.15%	4.10%	4.00%	3.95%	3.90%	3.90%
Annual Fiscal Year Revenue Loss (millions)	-$75.2	-$174.5	-$280.3	-$476.2	-$619.7	-$751.1	-$798.7

                                                                                           Legislative Analyst:   Chris Couch

                                                                                                  Fiscal Analyst:   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.