LANSING – In unanimously approving an income tax credit for persons buying a house in the state, the Senate last week apparently unwittingly approved a total tax cut of better than $2.6 billion for the current and next two fiscal years.

An analysis of the passed version of SB 346 , now in the House, has been posted by the Senate Fiscal Agency and shows that under the conditions set in the bill, home sales could jump by as much as 25 percent in the state and that would lead to overall income tax losses of $2.613 billion over three years.

At the time SB 346 was amended, no one in the Senate apparently understood what a quickly-adopted floor amendment could mean to the state’s coffers. In fact, the amendment that the chamber adopted was initially offered to mitigate anticipated revenue cuts of $69 million over two years.

Just to the state’s general fund, the unexpected income tax credit would slash its revenues by at least 12 percent. If it were to become law it would also mark the largest tax cut the state adopted since SB 1 in 1993, which eliminated all property taxes for schools and led eventually to the Proposal A school financing package in 1994.

The new analysis was posted shortly after SB 346 was passed, but was only stumbled on just as inadvertently as the mammoth tax cut was passed.

Asked if Senate members knew when they voted on the bill, a SFA official said, “Nobody asked us.” Nor had any Senate members or staff contacted the SFA to inquire about the new analysis, the official said.

As the bill originally came to the Senate floor the measure would have allowed a person who bought a house as his or her primary residence in 2009 and 2010 to claim an income tax credit equal to the difference between the house’s previous taxable value and the new taxable value after the house had seen the pop-up tax.

Sponsors and supporters of the bill wanted the state to provide some protection to homeowners from the effect of the pop-up tax.

But Democrats worried that the tax cut when added to other tax cuts approved by the Senate would punch a hole in state revenues of, ironically, $1.2 billion.

As a compromise, Sen. Gretchen Whitmer offered an amendment that would allow individuals to take a tax credit of 10 percent of the house price, up to $8,000. That amendment was defeated and replaced with an amendment from Sen. Mark Jansen (R-Gaines Twp.) to allow for a tax credit of 10 percent, up to $10,000.

Neither Whitmer nor Jansen could be reached for comment on Thursday.

Liz Boyd, spokesperson for Governor Jennifer Granholm, said the administration was aware the bill would have cost more than $1 billion. And, referring to House Republicans who called earlier this week for major budget cuts, Ms. Boyd said House Republicans should prevail on their Senate colleagues to stop passing tax cuts that would cripple state revenues.

But the analysis said that in most cases in the state such a credit would exceed an individual’s income tax liability. Most new homes sold in the state would automatically qualify the purchaser for the $10,000 credit, and most existing homes would do so as well, given that in 2008 the average cost of an existing house was $117,000.

The analysis assumes the credit would be an enormous boon to selling houses in the state, estimating it could shoot sales of houses up by 25 percent from the 163,000 units sold in 2008.

Were that to happen – and the bill would have to beat long odds of passing the House unamended and being signed by Governor Jennifer Granholm who has already said that all tax cuts passed have to be paid for – it could cut current year revenues by $76.1 million, 2009-10 revenues by nearly $1.2 billion and 2010-11 revenues by $1.33 billion.

Most of that cut would be absorbed by the general fund.

There is no indication of when or if the House might act on the bill.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com

a>>