Lansing — Republican Senate Majority Leader Mike Shirkey on Wednesday panned Democratic Gov. Gretchen Whitmer’s proposal to increase taxes on some businesses to pay for repeal of the state’s so-called pension tax.

“I’m going to say this as gently as I can: Taking actions like that would be doubling down on stupid,” Shirkey, R-Clarklake, told reporters after the Senate GOP caucus met behind closed doors to discuss Whitmer's prior-day budget presentation.

With Republicans controlling both chambers of the Michigan Legislature, Shirkey’s comments suggest doom for Whitmer’s proposal to increase taxes on “pass-through” businesses such as S-corporations, partnerships and limited liability companies.

Those firms were exempt from the state’s 6 percent Corporate Income Tax created as part of a 2011 tax code overhaul approved by the Republican-led Legislature under then-Gov. Rick Snyder. Instead, shareholders pay the state’s 4.25 percent income tax on earnings from pass-through companies.

Whitmer’s plan would create a new 6 percent tax for those businesses while providing an equivalent income tax deduction. The administration says it would amount to a 1.75-percentage-point increase on "pass-through" company earnings and create tax “parity” for all business types. It would amount to a 40 percent tax hike. 

The plan would generate $280 million to offset the price tag for what would be a $355 million price tag to reinstate an income tax exemption on pensions that was phased out under the 2011 law.

The proposal, which would affect an estimated 150,000 companies, was met by swift opposition from business groups and Republican allies who contend it would jeopardize economic gains the state has made in recent years. 

 “We do not need to go back to old forms and old techniques and old gimmicks,” said Shirkey, a Clarklake Republican who voted for the business-friendly tax code rewrite as a state representative in 2011.

“We need to stay the course on what we’ve been doing the last eight years. And those kinds of actions, as I said, would be doubling down on stupid,” he said.

Whitmer pitched her plan as a viable way to fund tax relief for seniors subject to the pension tax, which Snyder had pushed as a matter of fairness, arguing that pensions should not be treated differently than other forms of retirement income.

“I voted against (the pension tax) when then Snyder administration pushed it through to pay for the business tax break that was attached to it,” Whitmer said Tuesday. “So I didn’t attach these two issues together. That was done by the Snyder administration."

Senate Minority Leader Jim Ananich, D-Flint, backed the governor’s plan on Wednesday morning after Shirkey trashed it.

“What the governor laid out I think is a fair way to make sure that we relieve folks that are in retirement and some of the taxes that were placed on them eight years ago,” Ananich said. “And having an across-the-board tax plan that also increases the exemption and ties it to the federal would be I think a fair way to make sure that we address this problem.”

The tax proposal is designed to help businesses take advantage of federal tax deductions, and some would ultimately "pay less" under the new plan, according to Chief Deputy Treasurer Jeff Guilfoyle said. The Whitmer administration estimates the pass-through tax will generate $280 million in state revenue in 2021, but the net tax increase for businesses will be closer to $105 million because of federal deductions.

Whitmer’s plan would ensure that all businesses are treated “equally” under the tax code, Ananich said, while providing relief to seniors “from a tax obligation they weren’t prepared for.”

Shirkey opposes an outright repeal of the so-called pension tax. He’s made clear that any form of tax relief for seniors should include those with non-pension retirement income.

House Republicans, none of whom were in office during the 2011 tax code rewrite, are considering a pension tax repeal bill but have not proposed a way to pay for it.

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