Shortly after Michigan residents learned they’d be paying less on their income taxes, the state treasurer announced that this cut would be temporary and only apply to this year, despite clear language in the law requiring a permanent tax rate cut. The Mackinac Center is challenging this shaky interpretation of the law to preserve the tax cut and save Michiganders more than $700 million a year.
In 2007, the Michigan State Legislature bundled an earlier series of income tax provisions into one law that set the state’s individual income tax rate and specified the conditions for raising and lowering it. In 2015, the law was amended to state that after January 1, 2023, the “current” tax rate would be reduced if the previous year’s budget surplus exceeded inflation.
In their January 2023 Budget Analysis, the state legislature’s Fiscal Agencies predicted that budget surpluses would meet the conditions to trigger a tax cut. The Senate Fiscal Agency concluded that this cut would lower the rate from 4.25% to 4.05%.
Faced with the possibility of a permanent reduction in the tax rate, Gov. Whitmer and Democratic state lawmakers attempted to back-spend nearly $700 million. After a failed attempt to spend the money on corporate welfare projects, they announced their plan to provide $180 “inflation relief checks” to each Michigan household. These bills lacked the support needed to take immediate effect, which was required to prevent the tax cut. Whitmer ended up cancelling the checks and accepting the rest of the legislature’s tax plan on March 1 — including the new 4.05% income tax rate.
Although Michigan authorities accepted that the tax cut would be permanent, Attorney General Nessel claimed that the reduction was only temporary. In a March 23 opinion, the attorney general stated that the phrase “current rate” did not change from year to year with the most updated tax rate, but rather meant “a fixed rate of 4.25%.” This would be an automatic reversion to the older, higher rate each year, an interpretation that is inconsistent with both the text of the law and the Legislature’s past practice.
The state treasurer accepted Nessel’s view of the law, announcing on March 30 that the tax rate would revert to its prior level at the end of 2023. This would allow the government to collect more than $700 million extra from the taxpayers per year, beginning in 2024.
The Mackinac Center Legal Foundation filed a lawsuit against Michigan State Treasurer Rachel Eubanks on August 24, demanding that the state revise its budget to reflect the permanent income tax reduction instead of taking an additional $700 million a year from Michigan residents.
The complaint was filed on behalf of 10 parties. Two Michigan lawmakers, Sen. Ed McBroom, R-Waucedah Township, and Rep. Dale Zorn, R-Onsted; two Michigan-based business associations, Associated Builders and Contractors of Michigan and the National Federation of Independent Business, Inc.; as well six Michigan residents and taxpayers: Rodney Davies, Kimberly Davies, Owen Pyle, William Lubaway, Barbara Carter and Ross Vander Klok.
