The law says $714 million tax cut should be permanent
MIDLAND, Mich. — On behalf of a coalition of groups, individuals, and lawmakers, the Mackinac Center for Public Policy filed a lawsuit today against the state treasurer. The lawsuit seeks to ensure Michigan follows the law by preserving the income tax cut that took effect this year. The Center is representing Associated Builders and Contractors of Michigan, National Federation of Independent Businesses, Senator Ed McBroom, R-Waucedah Township, Representative Dale Zorn, R-Onsted, and six individual taxpayers from across the state.
Lawmakers, including two of the plaintiffs, passed legislation in 2015 that incorporated an income tax reduction trigger that lowers the current rate when the state’s revenue outpaces inflation by a set amount. Last year’s state revenue was high enough to trigger a rollback of the rate from 4.25% to 4.05%.
“Most small businesses in Michigan pay the personal income tax rate,” said Shane Hernandez, president of the Associated Builders and Contractors of Michigan. “This lawsuit protects them and all individual taxpayers from the more than half a billion-dollar tax increase set to go into place next year.”
This lawsuit seeks to stop the state treasurer from raising the income tax next year. If successful, the lawsuit will prevent an annual tax hike of around $700 million.
“The tax cut was a welcome relief to Michigan’s small businesses,” said Amanda Fisher, Michigan state director for the NFIB. “As small employers plan their expenses, it is important that they have certainty in what tax provisions are offered. If the attorney general’s interpretation is upheld, it will cause significant tax burdens on small businesses at an already fragile time in the economy.”
Attorney General Dana Nessel issued an opinion in March stating that the income tax reduction will only apply this year. When the law was passed, there was a clear consensus from politicians on both sides of the aisle and the media that the rate reduction would be permanent. The House Fiscal Agency’s 2015 analysis of the bill stated that the reductions would “continue indefinitely on an annual basis.”
“When we debated passing the tax cut trigger in committee hearings and on the floor, it was perfectly clear to everyone there that the reduction was meant to be permanent,” said Rep. Zorn. “Any change to the statute would require the Legislature to act, which we have not done.”
The Mackinac Center argues that legislative history and the dictionary definition of the word “current” indicate that the reduction is meant to stay at 4.05%, until the trigger once again lowers the rate. If lawmakers want to avoid these rate reductions and increase taxes, they must change the law.
“When we passed this particular issue, those opposing it were clear they understood it was a permanent drop — they even complained it could lead to a 0% rate eventually,” said Sen. McBroom. “Now they have created a novel interpretation to suit their present need and have thrown the people and the Legislature into an uncertain position. This lawsuit will provide the people and the Legislature with the certainty they need and deserve that the law does what it says and the tax reduction will continue.”
The Mackinac Center is requesting that the case be decided on an expedited basis to provided clarity for the state’s 4.9 million taxpayers.
“This is about the law,” said Patrick Wright, vice president for legal affairs at the Mackinac Center for Public Policy. “A clear reading of the statute shows that lawmakers put in place a permanent income tax rate reduction. The personal income tax rate on all Michigan citizens went down to 4.05% and should stay there absent new legislation.”