Issue Background

Tax Issues Affecting School Aid Fund Revenue

Update 2/21/17:House Bill 4001 is before the full House for debate.  Yesterday, the House adopted a substitute which changed the bill from a complete repeal to a rollback to 3.9% over the next four years.  Obviously this is better than total elimination, but our concerns with creating a hole in the budget that will total more than $1 billion in four years remain. 

2/16: MASB testifed opposed to the bill and outlined its many concerns with this proposal including the initial $1.1 billion hole it would create in the budget when the rate drops to 3.9%. This cut would hurt General Fund programs that benefit our families and schools and as we’ve seen in the past, as the General Fund gets tight, more programs and higher education funding gets moved into the School Aid Fund. The Governor has stated that he does not support the proposal as currently written and would rather focus on investment in Michigan.

House Bill 4001 is the most pressing issue right now. 

2/20:The income tax currently makes up 70% of General Fund revenues, approximately 25% of School Aid Fund revenues and a growing share of transportation funding. Without a replacement for this revenue, the General Fund will face serious constraints. By law, the SAF would be held harmless but as we all know, as the General Fund is stressed, more and more programs and higher education funding seem to make their way into the SAF.

The income tax currently makes up 70% of General Fund revenues, approximately 25% of School Aid Fund revenues and a growing share of transportation funding. Without a replacement for this revenue, the General Fund will face serious constraints. By law, the SAF would be held harmless but as we all know, as the General Fund is stressed, more and more programs and higher education funding seem to make their way into the SAF.

2/16: the House Committee on Tax Policy narrowly approved House Bill 4001after only approximately an hour of testimony. HB 4001 would change the income tax rate from the current 4.25 to 3.9% in 2018, and then each year following would roll it back by 0.1% until it was eliminated.

The bill was passed by a 7-4 vote with two Republicans abstaining. Rep. Martin Howrylak (R-Troy) and Rep. David Maturen (R-Vicksburg) both expressed concerns with the proposal, its intent and its effect on the state budget and therefore “passed” on the vote. All four Democrats on the committee voted no and the remaining seven Republicans voted yes.

MASB testifed opposed to the bill and outlined its many concerns with this proposal including the initial $1.1 billion hole it would create in the budget when the rate drops to 3.9%. This cut would hurt General Fund programs that benefit our families and schools and as we’ve seen in the past, as the General Fund gets tight, more programs and higher education funding gets moved into the School Aid Fund. The Governor has stated that he does not support the proposal as currently written and would rather focus on investment in Michigan.

However, eliminating the income tax is a priority of the Speaker of the House.