The future of Michigan’s tax cut is headed to court after the Mackinac Center for Public Policy sued Treasurer Rachael Eubanks late last month. The suit, which was filed on behalf of individual taxpayers, business groups and two lawmakers, seeks to preserve a legally mandated reduction in the personal income tax rate.
A 2015 law requires that the rate come down should tax revenues outpace the rate of inflation. This fiscal year’s large tax haul met that requirement. Despite strong efforts by Gov. Gretchen Whitmer to circumvent the requirement, the income tax rate fell from 4.25% to 4.05%.
But that was not the end of efforts to short-circuit the law. Attorney General Dana Nessel issued an opinion to the Treasury Department in March, arguing that the specific language of the bill does not call for a permanent tax cut. Instead, Nessel claimed, the rate must revert to the higher number after the current fiscal year – a reading not supported by precedent nor by the explicit language of the law. Eubanks accepted the attorney general’s opinion and announced that the tax rate will increase next year.
Her administration is ignoring the law to block an income-tax cut, but a group of legislators, businesses and individual taxpayers are suing to restore the rightful tax rate.
The Mackinac Center Legal Foundation argues that lawmakers would have spelled out the frame of the cut if they meant it to be temporary. Previous cuts—like one during the last inflationary era in 1983—specified a baseline rate for the income tax to return to. The 2015 law behind this year’s cut provides no such baseline.
In National Review, two of the Mackinac Center’s clients penned an article explaining the importance of keeping the tax cut for the businesses their respective organizations represent. Shane Hernadez of the Associated Builders and Contractors of Michigan and Amanda Fisher of the National Federation of Independent Businesses wrote:
Approximately 58 percent of small businesses in Michigan are pass-through entities, meaning they pay their business taxes through the individual income tax. Their annual relief can range into the thousands of dollars. This money goes a long way for businesses that are still recovering from pandemic shutdowns while facing rapid inflation and ongoing supply-chain issues. With a permanent tax cut, small businesses can reinvest the savings in their workers and operations, as they’re already doing this year. That will stop if the attorney general’s opinion stands and the tax cut disappears in December.
Patrick Wright, vice president for legal affairs at the Mackinac Center appeared on the WJR’s All Talk with Jordan & Dietz and on the Michigan Big Show to discuss the case. In his discussion with Michael Patrick Shiels, Wright said, “In 2015, the legislators that passed this tax cut believed it was permanent. … There is a debate over what the term ‘current rate’ means.” If the 2015 legislators wanted the tax to revert to 4.25% every year, Wright argued, they could simply have written the 4.25% number into legislation instead of the word “current.”
The Mackinac Center has asked that this case be decided by Dec. 15, in order to provide clarity to taxpayers before the next calendar year begins.
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