James Hohman wrote in the previous issue of IMPACT that the Michigan Legislature had delivered a broad-based tax relief package to Gov. Gretchen Whitmer’s desk. At about the same time, lawmakers approved a six-month suspension of the 27-cent gasoline tax, which would give motorists some relief from the surge in prices. Senate Democrats denied the gas-tax bill “immediate effect,” meaning it would not take effect until next year.
Unfortunately, on a late Friday afternoon shortly after that issue was published, Gov. Whitmer vetoed all the tax reduction options. The timing was no accident. Last year she vetoed Student Opportunity Scholarship legislation in the same way. Late Friday afternoon has long been the preferred time to release news you would rather have buried.
An alternative from the Senate Democratic leader and endorsed by Gov. Whitmer would suspend the state’s gasoline sales tax for six months. Michigan is one of the few states that charges a gas sales tax. Most of these collections are dedicated to the School Aid Fund (which is already overflowing) while none are dedicated to road construction.
The sales tax is levied as a percentage of the price of gas rather than a fixed amount per gallon, so $4.50/gallon is the threshold for deciding whether suspending the sales tax or the 27-cent-per-gallon gas tax would give more relief to motorists.
There is still a chance for broad-based tax relief this year. Tax relief will be a key negotiating point during this summer’s discussions on the 2022-23 state budget. We continue to remind legislators that setting responsible spending levels will create room for at least $1 billion per year in ongoing tax reductions.
Sixteen states have reduced income tax rates since the start of 2021. Michigan’s competitiveness in attracting businesses and talent will slip quickly unless our state leaders follow suit this year.