After news that the state is going to collect even more in tax revenue than the increases that were already expected, Michigan legislators voted again to cut taxes. A bill reducing the income tax rate to 4% passed the House with some bipartisan support and the Senate with Republican support.
Unfortunately, Gov. Whitmer responded the same way she did to a previous tax cut earlier this year, signaling that she would veto the bill. It looks like she simply cannot tolerate reductions in tax rates.
That is a shame, because people deserve a tax cut.
This time Whitmer did not claim that the state could not afford to lower taxes, the excuse last time. Not only has state revenue grown through the COVID-19 pandemic, but it’s grown by a lot. The state budget is $4.7 billion larger than it was in the year prior to the pandemic, excluding federal revenues. There is also $10.2 billion sitting in state accounts and $2.8 billion in federal stimulus lawmakers haven’t yet decided what to do with.
For this tax cut bill, Whitmer complained that it didn’t give her the tax policies she prefers. But it did give her some of the things she asked for. It increased the Earned Income Tax Credit, one of her recommendations. It also increased exemptions for senior citizen income. These are not exactly the pension exemptions the governor recommended, but they are better policy since they don’t give preferences to one type of retirement income but not others.
The proposal did, however, reduce the income tax rate from 4.25% to 4.0% — slightly less of a reduction than the last time but nevertheless a policy that Whitmer does not like.
Michigan should cut tax rates. It’s the kind of reform that makes the state more competitive and encourages job growth. Leaders in 21 other states have also found themselves with extra money and decided to cut taxes.
Instead, Whitmer called for the state to write checks to households. This does not make Michigan more competitive or improve the state’s long-term outlook.
People have been waiting a long time for an income tax rate reduction. Rates were supposed to come down after the 2007 tax hikes, but the legislature later cancelled the planned reduction. Then when lawmakers raised fuel and vehicle registration taxes in 2015, they wrote a law that would drop income tax rates if revenue increased faster than inflation. State revenue has increased by more than inflation, even with the spike in the consumer price index over the past year. Yet because of the timing and definition issues in statute, residents, again, are unlikely to get the tax cuts they were promised.
Legislators have twice now voted to make good on those pledges, and the governor continues to stand in the way.
There is room for compromise. Legislators have already bent to a number of the governor’s preferences. But the governor doesn’t seem to tolerate a tax cut, and without that it will be difficult to get to a deal.
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