Whitmer’s proposal would give Lansing, EL thousands and thousands, for income tax loss
LANSING – A budget proposal presented by Michigan Governor Gretchen Whitmer would help cities like Lansing and East Lansing offset some of their income tax losses during the pandemic.
Unemployment benefits are taxed by the state and federal government, but not by cities in Michigan. And the popularity of remote working during the COVID-19 outbreak is costing municipalities millions as non-residents are not taxed on wages they earn while teleworking outside an income tax city.
Lansing and East Lansing have an income tax of 1% for residents and 0.5% for non-residents who work in the city. But a government employee with an office in Lansing, for example, does not have to pay the 0.5% tax on income earned while working at her home in DeWitt Township.
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One position in Whitmer’s $ 67 billion budget recommendation would split $ 70 million in state aid across 24 Michigan cities that levy an income tax. That money would be a “lifeline” despite being a fraction of the projected local income tax loss of $ 250 million based on calculations by the Michigan Department of the Treasury for the 2020 tax year, said Michigan Municipal League lobbyist Chris Hackbarth.
Michigan’s budget for 2022 must be approved before the new fiscal year starts on October 1st. The House and Senate budget committees are debating budget changes this week.
Lansing would receive $ 6 million on Whitmer’s proposal. City officials have predicted that income tax receipts will decrease by about $ 8 million, or nearly 22%, over the current fiscal cycle.
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East Lansing, which predicted income tax revenues would decrease $ 3 million, or 21%, would receive $ 2.2 million from the governor’s position.
Lansing and East Lansing 2020 income tax returns are due by June 1st.
Hackbarth is confident that some local income tax rallies could recover relatively quickly if unemployment falls. But the trend towards working from home is likely to continue even after the pandemic has subsided and some cities suffer from the bottom line in the long term.
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“How do we keep these cities whole?” Hackbarth said. “It’s big churches. It’s small churches. It’s urban. It’s rural.”
Local governments are getting other sources of pandemic-related aid, including $ 45.6 billion from the US federal bailout plan for major cities across the country.
Lansing expects to receive nearly $ 51 million from this plan in two installments, and city officials say they plan to use some of the money to offset hits from lower income tax collections for the general fund.
Local authorities are awaiting official guidance on whether the American Rescue Plan’s money can be used to tackle income tax shortages, but it appears the aid can largely be used to offset lost revenue caused by the pandemic, Hackbarth said.
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Hackbarth noted, however, that if cities use the money to cover income tax losses, they forego the option of spending some of their federal aid on other purposes such as infrastructure.
“That’s 24 cities (with an income tax in Michigan) that, if they don’t get extra support, don’t have the option for other cities to invest in themselves, their residents and their businesses,” Hackbarth said.
Lansing Mayor Andy Schor’s recommendation of $ 227 million for the fiscal year beginning July 1 has yet to be approved by the city council. This plan includes a generic fund of $ 151, an increase of 10% over the current fiscal year. Federal aid accounts for a large part of the increase.
Contact reporter Sarah Lehr at [email protected] Follow her on Twitter @SarahGLehr.