House GOP scales back tax cut plan, drops phase-out

Lansing — Michigan House Republicans are scaling back their controversial plan to slash the state’s personal income tax, proposing a rate reduction over four years rather than elimination over four decades.

Revised legislation, cued up for a floor vote as early as Wednesday, would reduce the state’s 4.25 percent income tax to 3.9 percent by 2021.

“Our caucus is dedicated to providing tax relief to the people of our state,” sponsoring Rep. Lee Chatfield, R-Levering, told reporters. “That’s what this plan does, and that’s why we’re happy to see this conversation continue.”

An earlier version of the bill would have cut the income tax rate to 3.9 percent in 2018 and then phased it out over the next 39 years. It was strongly opposed by Republican Gov. Rick Snyder and state Treasurer Nick Khouri, who urged more discussion of budget consequences.

The new plan would still reduce projected state revenues by more than $1 billion a year once fully implemented, but it would give budget makers more time to contemplate the potential cuts it may force.

“We appreciate that House leadership took seriously the concerns about the long-term impact on Michigan’s fiscal health, but we are still waiting to see their list of a billion dollars in budget cuts so that we can examine how it will affect residents and communities statewide,” said Snyder spokeswoman Anna Heaton.

Most Democrats continue to oppose the plan, meaning Republicans will need to put up most of the 56 votes needed for passage. GOP legislators talked Tuesday behind closed doors for roughly two hours.

Chatfield, speaker pro tem in the House, declined to say whether Republicans were close to having enough votes to pass the more aggressive plan or whether they already have the votes to pass the revised version.

The scaled-back plan was unveiled hours after a spokeswoman confirmed Senate Majority Leader Arlan Meekhof, R-West Olive, was “not enthusiastic” about the original House proposal.

“This isn’t about bargaining power, this is about providing tax relief to the citizens of the state,” Chatfield said.

The revised legislation would still leave more money in taxpayer pockets but reduce state revenues by $195 million in fiscal year 2018, $463 million in 2019, $780 million in 2020 and $1 billion in 2021, according to a fiscal analysis.

House Speaker Tom Leonard, R-DeWitt, and other supporters say the plan could stimulate the economy and fulfill a promise made in 2007 when then-Gov. Jennifer Granholm and state legislators raised the rate to 4.35 percent. The rate was frozen at 4.25 percent under Snyder.

But university leaders who gathered inside the Michigan Capitol on Tuesday warned the original House tax cut plan could force higher education funding cuts and steep tuition increases.

“Considering the size of the state budget, it’s hard to imagine higher ed not being affected with such a drastic, dramatic cut,” University of Michigan President Mark Schlissel told reporters.

“This isn’t really conservatism, this is radicalism. It’s hard to understand where we’re going as a state if we can’t maintain a commitment to our children and their future through education.”

Schlissel and other university presidents huddled outside the House Chambers with Democratic Reps. Yousef Rabhi of Ann Arbor and Jon Hoadley of Kalamazoo. They hoped to meet with GOP leaders later in the day.

House Republicans went from “a terrible idea to a bad idea” when they scaled back their tax cut plan, Hoadley said after session. He and other Democrats are calling for targeted tax cuts, including creation of a graduated income tax with lower rates for low-income earners.

The revised GOP plan is “still wrong for Michigan,” Rabhi said.

Snyder and state legislators slashed higher education funding in 2011 alleviate a budget crunch, and while they’ve largely restored funding since that time, university leaders are fearful their funding will again be targeted if the tax cut plan becomes law.

“There’s very few places where you can go to get a billion dollars,” said Wayne State University President M. Roy Wilson. “Higher ed is one. I guess Medicare or Medicaid is another. K-12 maybe is a third. There’s very little you can draw discretionary funding from.”

He predicted “much higher tuition” if the tax cut plan is adopted.

Michigan’s 15 public universities qualified for $1.4 billion in collective state funding this year, slightly lower than the $1.42 billion they received in 2011. And when you consider inflation, university leaders say state support is roughly equivalent to 1992 levels.

“While tuition has gone up, that balance has not been producing double-digit revenues,” said Michigan State University President Lou Anna K. Simon. “That’s true of all public universities.”

The Mackinac Center for Public Policy, a free-market think tank in Midland that holds sway with some Republicans, has suggested state legislators consider higher education funding cuts as they pursue personal income tax relief.

The University of Michigan in Ann Arbor is “a top candidate for privatization,” said Michael LaFaive, director of fiscal policy for the Mackinac Center, which argues UM is rich enough to run on its own and often caters to wealthier families who could afford tuition absent any state subsidies.

UM will receive about $308.6 million in state funding this budget year, down from the $316.3 million it received in 2011. In-state tuition currently averages $15,310.

“The University of Michigan has long been a focus for us because of the size of the state appropriation and the minimal amount of state subsidies that are used to operate the university,” LaFaive said. “The university endowment is so large it could be used immediately and effectively to sustain operations.”

UM’s University Endowment Fund, which includes endowments for its three campuses and health system, was valued at $9.7 billion last summer. Private donors contribute to the endowment funds, which the university can then invest. The investment returns provide a continuous source of support for specific programs and purposes.

“Our state and our nation already has a large number of great private universities,” Schlissel said. “What it doesn’t have is great public universities like the University of Michigan.”

More than 14 percent of freshmen attending UM this year are the first members of their family to attend college, he said.

“Our biggest priority is to make sure that the ticket in the front door of the university is how smart you are and how hard you’re willing to work, not who your mom and dad are,” Schlissel said. “We are a public university, and we will continue to be so.”

Chatfield said he disagrees with the “pre-supposition” that tax cuts proposed by House Republicans would force significant spending cuts to higher education or other budget areas, arguing the policy would instead help create more jobs and economic activity.

“I think any day where we can provide tax relief to the people of our state is a good day, and it’s something we should celebrate,” he said.

joosting@detroitnews.com