Treasury, AG say state income tax cut is not permanent, angering Republicans
A tax cut triggered by the state’s record budget surplus will drop Michigan’s tax rate to its lowest level in more than 15 years. However, Republican lawmakers are protesting an announcement that the cut will only apply for this year.
Michigan Treasurer Rachel Eubanks on Wednesday said the state’s income tax will decrease from 4.25% to 4.05%, the lowest rate since 2007. During former Gov. Jennifer Granholm’s tenure amid a long recession, there was a bipartisan deal, following a brief, partial government shutdown, to hike Michigan’s income tax as part of a plan to close the budget gap.
“When Michiganders file their 2023 state income taxes in 2024, they will see the rate adjustment in the form of less tax owed or a larger refund,” said Eubanks.
The $650 million tax cut, which will amount to about $50 per taxpayer, came about because of a 2015 law signed by former Gov. Rick Snyder that ties the income tax to the state’s General Fund.
Michigan currently has an approximately $9.2 billion budget surplus, largely due to one-time use pandemic-era federal funds.
The announcement of the tax cut followed a legal opinion issued earlier in the week by Attorney General Dana Nessel that the cut would only apply to the 2023 tax year.
“Essentially, the Legislature has determined that if a situation exists where a percentage increase in state revenue in the immediately preceding fiscal year is greater than the rate of inflation for that same year and the inflation rate is positive, then the State can afford to provide relief to taxpayers,” Nessel said in the opinion provided to Eubanks.
“But because that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the (perhaps unusual) economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well. Simply put, the statute provides temporary relief based on temporary circumstances.”
However, Republicans say the opinion flies in the face of the intent of the 2015 law.
“Since the beginning Gov. Whitmer has tried every trick in the book to undermine this income tax cut,” said House Minority Leader Matt Hall (R-Richland). “After Republicans stopped the governor’s attempt to block the tax cut with accounting shell games, she and Attorney General Nessel are resorting to fringe legal theories to keep long-lasting relief out of people’s pockets. Michigan law states that the current tax rate will be reduced, and the language, history, and legislative intent of the law all make clear that the tax cut should be permanent. Playing word games with the law doesn’t change the law. Michigan taxpayers deserve lasting, real relief, not a temporary money mirage brought on by Democrats’ partisan tricks.”
Gov. Gretchen Whitmer and and Democratic legislative leaders in January proposed $180 “inflation relief” checks for taxpayers that would have shifted money out of the General Fund and avoided triggering the tax cut. However, Senate Democrats were unable to get enough votes from Republican senators to have given the change immediate effect.
Whitmer did sign this month other tax reforms that passed, including axing the so-called pension tax and boosting the Earned INcome Tax Credit (EITC) for working-class families.
Hall also pointed to an analysis by the nonpartisan experts at the House Fiscal Agency that the income tax cut would be permanent.
“This determination would begin with tax year 2023 (based on final FY 2021- 22 GF/GP revenue growth) and continue indefinitely on an annual basis,” stated the analysis.
Other legal experts have said that the Legislature overstepped its authority with that 2015 legislation.
“So in 2015, the legislature vested the administrative task of making the determination, of executing this law, jointly in the state treasurer, an officer of the executive branch, and the directors of the two legislative fiscal agencies, both legislative branch officers,” tweeted Steven Liedel, former counsel for Granholm who’s now with the Lansing-based Dykema law firm in Lansing, “Which would appear to run afoul of Michigan’s Separation of Powers Clause.”
Regardless, state Rep. Greg VanWoerkom (R-Norton Shores), Republican vice chair of the House Tax Policy Committee, condemned Nessel’s opinion.
“Architects of the income tax cut trigger, former Gov. Snyder, former Speaker Kevin Cotter, and former Senate Majority Leader Arlan Meekhof each stated that this law was intended to be permanent,” he said. “The nonpartisan experts at the House Fiscal Agency have also said that the income tax cut would be permanent. This is a disappointing effort by Democrats to negate the law as it is written, simply because they do not like it.”
The tax cut will have been considered to be in effect as of Jan. 1, 2023, when residents file their taxes next year.