Analysis of Michigan HB 4170

We project the bill, which would reduce Michigan’s tax rate from 4.25% to 4.05%, would cost $644 million in 2025.

On March 5th, Michigan State Representative Kathy Schmaltz introduced House Bill 4170, which reduces the state's income tax rate from 4.25% to 4.05% beginning in tax year 2025. The bill also reduces the rate further in future years, conditional on state revenue growth exceeding inflation rates.

We have analyzed the impacts of this reform using the PolicyEngine microsimulation model, showing the effect on the state of Michigan and its residents.

Key results for 2025:

• Reduces state revenues by $644 million
• Benefits 75% of Michigan residents
• Lowers the state's Supplemental Poverty Measure by 0.02%
• Increases the Gini index of income inequality by 0.07%

Use PolicyEngine to view the full results or calculate the effect on your household.

Higher-income households receive larger tax savings due to their higher taxable income and initial tax liability. A childless couple in Michigan earning $30,000 receives $67 from the rate reduction, while the same household type gains $277 at $150,000 of earnings or $1,177 at $600,000.

Table 1: Change in Net Income by Household Income for a Childless Married Couple

Figure 1 shows the change in household net income for a childless couple in 2025. The couple does not have any tax liability for earnings up to $11,250 due to the state exemption amount. The household is not eligible to receive any standard deduction amounts as they are only applied to filers aged 67 and older.

PolicyEngine's static model indicates the income tax cut would reduce state revenues by $644.8 million in tax year 2025. Federal revenues rise by $455,000 due to the state and local tax deduction.

The measure increases net income for 75% of Michigan residents. By income level, 14% of the population in the first income decile and 100% in the top decile would receive a net gain from the 2025 tax cuts.

Households would receive an average benefit of $153, ranging from $5 in the bottom income decile to $747 in the top decile.

The tax reduction would increase Michigan's Gini index of income inequality by 0.07%. We project it to reduce the state's poverty rate by 0.02% according to the Supplemental Poverty Measure, while deep poverty levels remain unchanged.

Michigan's proposed income tax rate reduction would decrease state revenues by $644.8 million in 2025, reducing poverty by 0.02% and increasing income inequality by 0.07%. While the reform reduces tax liability across all income deciles, higher-income households receive proportionally greater benefits.

Tools like PolicyEngine provide data for policymakers evaluating such reforms, offering insights into impacts on various household types and the broader economy.

We invite you to explore our additional analyses and use PolicyEngine to calculate your own tax benefits or design custom policy reforms.

pavel makarchuk
Economist at PolicyEngine

© 2025 PolicyEngine. All rights reserved.