Michigan's income tax rate set go back up again; critics call it a tax hike

Lansing — Michigan's personal income tax rate will return to 4.25% in 2024 from 4.05% last year, unless a court intervenes, the Michigan Department of Treasury announced in a Wednesday afternoon statement.

A 2015 state law approved by a Republican-controlled Legislature allows the income tax rate to drop, through a formula, if general fund revenues grow faster than inflation. For 2023, the calculation meant the rate dropped from 4.25% to 4.05%.

But for 2024, the general fund, for the past year, declined 8.3% from $15.3 billion in 2022 to $14 billion in 2023, and inflation increased 5.06%, according to the Michigan Department of Treasury's statement.

“As anticipated, we found that the conditions were not present for a rate reduction for the 2024 tax year," Michigan Treasurer Rachael Eubanks said. "The tax rate will remain at 4.25%.”

The announcement Wednesday came amid an ongoing legal battle over how Gov. Gretchen Whitmer's administration, in which Eubanks serves, interprets the income tax trigger.

Whitmer and Michigan Attorney General Dana Nessel, both Democrats, have found tax cuts prescribed by the law should last for one year and the formula should be used again based on the original rate of 4.25% annually.

But a group of Republican lawmakers, organizations and individuals have sued, contending that the calculation should be based on the new rate each year. Under their reading of the policy, Michigan's rate would be 4.05% again in 2024.

Michigan Court of Claims Judge Elizabeth Gleicher issued an opinion in December, agreeing with the determinations previously made by Nessel and Eubanks. But the plaintiffs behind the lawsuit are seeking to appeal the decision.

Last week, Republicans in the Michigan Senate asked Whitmer to create a "contingency" budget plan for next year in case a court agrees that the 4.05% income tax rate should remain in place. That drop in the rate would cut state revenues by an estimated $700 million.

“If the courts were to provide a favorable ruling for the people of our great state by protecting families and small businesses from an income tax increase, the budget you presented this month would be out of balance,” wrote Senate Minority Leader Aric Nesbitt, R-Porter Township, and Sen. Jon Bumstead, R-North Muskegon, in a letter to Whitmer.

cmauger@detroitnews.com