Revenue and Inflation Conditions Not Present for a Rate Reduction




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*FOR IMMEDIATE RELEASE
**February 28, 2024*

*Contact:?Ron Leix <[email protected]>, Treasury, 517-335-2167*

Calculation of State Individual Income Tax Rate Adjustment for 2024 Tax Year [ [link removed] ]

*"?"*"Revenue and Inflation Conditions Not Present for a Rate Reduction"

LANSING, Mich. ? State Treasurer Rachael Eubanks, Senate Fiscal Agency Director Kathryn Summers and House Fiscal Agency Director Mary Ann Cleary today published their calculation [ [link removed] ] about whether an individual income tax rate adjustment is statutorily required for the 2024 tax year.

Upon publication of the state of Michigan?s Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2023 ? which ran from Oct. 1, 2022, to Sept. 30, 2023 ? the state treasurer and agency directors conducted a state law-required calculation to determine if a rate change was required. The result of that calculation found that the conditions for an individual income tax reduction were not present.

*Treasury Administration of Calculation*

?State law requires that a very specific calculation be conducted annually following release of the state?s ACFR to determine the individual income tax rate,? said State Treasurer Rachael Eubanks. ?As anticipated, we found that the conditions were not present for a rate reduction for the 2024 tax year. The tax rate will remain at 4.25%.?

Under state law, the individual income tax rate may be subject to a formulary reduction if the general fund grew faster than the rate of inflation for the immediately preceding state fiscal year and the inflation rate is positive.

Using data from the state Fiscal Year 2023 ACFR, the general fund was down -8.33% and inflation went up by 5.06%. This means conditions are not present for a rate reduction for the 2024 tax year. (See Table 1.)

*Table 1.* Individual Income Tax Rate Calculation Data

*Fiscal Year*



*Total General Fund/General
Purpose Revenue *

*(In Millions)*(1)



*Consumer Price
Index*(2)



2022



$15,309.1



287.723



2023



$14,033.6



302.289



*Percentage Change*



*-8.33%*



*5.06%*



(1) MCL 206.51(1)(c)(ii)
(2) MCL 205.51(10)(b)



The ACFR for Fiscal Year 2023 can be found on the State Budget Office?s website [ [link removed] ]. Additional details about the individual income tax rate calculation can be found in a taxpayer notice issued by the Michigan Department of Treasury [ [link removed] ].

In 2015, Michigan enacted a law requiring a temporary reduction of the state individual income tax rate if the general fund grew faster than the rate of inflation in any year starting for the 2023 tax year. Because the general fund grew faster than inflation during the state?s 2022 fiscal year, the state individual income tax rate decreased to 4.05% for the 2023 tax year [ [link removed] ].

Last year, Attorney General Dana Nessel issued a legal opinion [ [link removed] ] finding that the tax reduction will apply to the 2023 tax year only. The Michigan Court of Claims reaffirmed the finding.

Annually, upon the publication of the ACFR, the law requires the state treasurer and the directors of the House and Senate Fiscal Agencies to determine if the income tax rate will change.

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