Lansing – Republicans and Democrats in the Michigan Legislature on Wednesday overrode a veto by GOP Gov. Rick Snyder, approving an accelerated sales tax break for used vehicle trade-ins the governor had rejected last year.
The veto override is the first in more than seven years under Snyder and just the third since 1977, highlighting an ongoing tax policy dispute between legislators and the term-limited accountant governor.
The override is “not only a historic action, but it also represents our democracy and constitution in full action,” said sponsoring Sen. Dave Hildenbrand, R-Lowell, prior to unanimous votes in the upper chamber and 85-23 votes in the House.
Snyder spurned legislators in July by rejecting the proposal to accelerate a sales tax break for motorists who trade in old vehicles to purchase new ones, calling the bipartisan plan “not fiscally prudent.” It could cost the state roughly $300 million over more than a decade.
Legislative leaders first signaled the possibility of a veto override in August. Nearly five months later, they pulled the trigger, securing the necessary two-third super-majority votes on the same day the Senate also approved a new personal exemption tax cut plan despite similar budget concerns by the Snyder administration.
“Changing the tax code without a plan to pay for it challenges the conservative fiscal responsibility of the past seven years,” Snyder said in a statement after the Wednesday votes.
“Reinvention of the tax code balanced with responsible management of taxpayer dollars created our state’s comeback, and we need to stay on the current course of long-term financial planning so we can continue our current trajectory of record economic growth and declining unemployment rates. This is how we best protect Michigan families and leave the next administration and Legislature with a balanced checkbook so they can continue the comeback.”
House Speaker Tom Leonard, R-Dewitt, told reporters he does not think the veto override should damage his working relationship with Snyder, though it’s rare for lawmakers to override a veto.
“Well, this has been an unconventional term,” Leonard said. “But that said, no it’s not going to cause any tension. Nobody should take this personally. We simply did as a chamber what we thought was best for our taxpayers today.”
Senate Minority Leader Jim Ananich, D-Flint, co-sponsored the vehicle trade-in sales tax bill and said the veto override vote “sends a strong message that we can’t just continue to balance the state’s budget on the backs of regular folks.”
Senate Majority Leader Arlan Meekhof, R-West Olive, said he told Snyder about the looming veto override before the Senate vote. The governor “didn’t say anything,” Meekhof told reporters.
“I know that he doesn’t care for it, but I represent families – as does he – and I think the notion that the government needs more money than our families is preposterous,” Meekhof said.
Separately, the Senate unanimously approved a tax cut plan to expand the state’s personal exemption, linking it to a second bill that would create a tax credit for child and dependent care. A competing House plan debated in committee would also raise the exemption and create a $100 senior tax credit for anyone over the age of 62.
GOP sponsors view the Senate and House proposals as compromises with Snyder, who last year opposed a larger House tax cut plan to reduce the state’s 4.25 percent personal income tax rate.
“I think there’s a general consensus that with the passage of this, the talk of income tax reform is likely off the table,” Rep. Jim Tedder, R-Clarkston, said of the House plan.
“This is a way that presents a positive net benefit to all Michiganders. When you put more money in people’s pockets, there’s a propensity for them to spend that money, and there’s a compounding benefit to that.”
Leaders in Michigan’s Republican-led Legislature have been racing to cut state taxes since Snyder and Lt. Gov. Brian Calley urged them to “fix” what they’ve described as a problem created by recent federal tax reforms.
Snyder wants to protect the state personal exemption and increase it from an expected $4,300 to $4,500 by 2021 to offset other impacts of the federal overhaul, warning that failure to adjust the state tax code could cost Michigan taxpayers $1.5 billion a year.
The Senate legislation approved Tuesday would go beyond Snyder’s proposal by raising the state’s personal exemption to $5,000 by 2021 and then increase it. It would save an average family about $125 a year, said sponsoring Sen. Jack Brandenburg, R-Harrison Township, and is projected to cost the state about $206 million in annual revenue once fully implemented.
Senate Democrats backed the exemption bill, which they view as a more equitable form of tax relief than past proposals to reduce the state’s personal income tax rate. In doing so, they bashed the federal tax reform legislation intended to cut taxes.
“Democrats are always happy to fix messes handed to us by Republicans from Washington,” Ananich said.
The child and dependent care tax credit bill, set for a full Senate vote next week, would cost the state about $81.2 million a year but could save a family with two children nearly $500 annually, according to sponsoring Sen. Margaret O’Brien, R-Portage.
State Sen. Steve Bieda, D-Warren, did not vote on the exemption bill in committee but supported it on the floor after Republicans agreed to an amendment that would prevent any revenue loss for the School Aid Fund.
“This is a tax cut that really benefits working families and working people,” Bieda said. “I’ve been in the Senate for a little over seven years, and we’ve seen big business tax cuts, corporate tax cuts up the kazoo, but we haven’t done anything, even though the Democrats have tried, to help working people and working families.”
The House plan, debated Wednesday in the Tax Policy Committee, would increase the personal exemption to $4,800 by 2020, a move projected to cost the state $157.5 million a year but save a typical family about $80 annually.
The House package would also create a new refundable tax credit for seniors at $100 for a single filer and $200 for joint filers. The senior credit would cost the state about $200 million a year in revenue, mostly from the general fund, according to the nonpartisan House Fiscal Agency.
Snyder and a Republican-led Legislature eliminated an income tax exemption for senior pensions as part of a 2011 tax code overhaul that cut taxes for businesses but froze a planned reduction in the personal income tax rate. Legislators on both sides of the aisle have since pushed to provide seniors with some form of relief.
“At a time in one’s life where dollars are finite and resources are limited, I think this is an opportunity for us to give back to the senior community and affirm that Michigan is a welcoming place for our seniors,” said Tedder, the provision’s sponsor.
State Treasurer Nick Khouri and Budget Director Al Pscholka were spotted leaving a Capitol meeting with lawmakers Tuesday morning prior to the Senate vote.
“There’s nothing more (to say) than what we said last week,” Khouri told The Detroit News. “This is an issue of the budget, and we’ll continue to work on it.”
While state budgets have grown under the governor’s watch, revenue flowing into the general fund — the state’s main source for discretionary spending — remains below fiscal year 2000 levels, according to the Senate Fiscal Agency.
Khouri and Pscholka have urged legislators to consider $2 billion in spending commitments expected to hit the budget in coming years, including general fund money that will be dedicated to roads and pay for a voter-approved plan to phase out personal property taxes.
Gilda Jacobs, president of the Michigan League for Public Policy non-profit, has also urged legislators to consider the budget impact, a message senators from both sides of the aisle brushed off Wednesday.
“These proposals come with a greater cost to the state, our services and our people than individuals stand to gain from these personal exemption increases,” she said in a statement.