Tax cut fever cools after failed Mich. House vote

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Tax cut fever is on life support in the Michigan Legislature following the defeat of a personal income tax reduction plan backed by Republican House Speaker Tom Leonard but opposed by GOP Gov. Rick Snyder.

The state House rejected the proposal early Thursday morning in a 52-55 vote, concluding a marathon session that stretched for more than 12 hours as Leonard and other Republican leaders pulled members behind closed doors to urge support.

The Michigan Senate continues to discuss its own tax relief ideas, but Majority Leader Arlan Meekhof said Thursday that the failure of the House plan shows how hard it is to agree on any plan that could force spending cuts.

“I would say the speaker made it very difficult,” Meekhof, R-West Olive, told reporters. “I don’t know that it is dead, but it’s very difficult.”

The House plan sought to cut the state’s personal income tax rate from 4.25 percent to 3.9 percent by 2021. As amended Thursday, the rate would freeze at 4.05 percent in 2019 if the state’s “rainy day” savings fund had a balance of less than $1 billion.

While the lower chamber could reconsider the vote at a later date, Leonard was noncommittal when asked what’s next for the House.

“We work on the budget for the next three or four months, and we pick up the next big agenda item, and we go for it,” Leonard told reporters around 2 a.m. “This is not going to stop us. We’re going to continue to tackle big issues.”

The third-term DeWitt Republican said he had a strong suspicion the measure would fail when he put it up for a vote but did so anyway because an “overwhelming majority in my caucus wanted to let the world know where they stood in terms of defending taxpayers in this state.”

Only one Democrat voted for the tax cut plan, which was supported by 51 of 63 Republicans.

House Minority Leader Sam Singh said Democrats are open to a more targeted form of tax relief. But his caucus members argued that cutting the state’s flat income tax would disproportionately benefit wealthy residents while forcing potential funding cuts for various government services.

“We will not be willing to bust the budget at the expense of our roads, our schools and our police and fire,” Singh, D-East Lansing, told reporters after the vote.

‘Learning curve’ for Leonard

Leonard and sponsoring Rep. Lee Chatfield, R-Levering, hoped to quickly advance the income tax cut policy to influence negotiations with Snyder and senators on the 2018 budget, which all sides hope to finalize by mid-June.

But the process was “totally in reverse,” said state Rep. Larry Inman, R-Traverse City, an opponent of the plan who joined Snyder in calling for Republican leaders to identify any spending cuts it could have forced.

“I’ve got a lot of concerns about just walking blindly into this thing and then letting them look like they’ve accomplished their goal but leaving us with the responsibility of deciding the cuts later,” Inman said.

Leonard, who took over the speaker’s role in January, has made tax relief one of his top priorities.

But the contentious process flamed out, with Leonard accusing Rep. Jason Sheppard, R-Temperance, of lying about his position on the tax cut legislation and stripping him of his role as chair of the House Financial Services Committee.

“The representative from Monroe County looked me in the eyes, told me he was going to be a yes vote, and voted no,” Leonard told reporters prior to his 3:13 a.m. announcement that Sheppard’s chairmanship will be filled by Rep. Diana Farrington, R-Utica.

Tom Shields, a Lansing-based Republican consultant, said it was “very odd” for House leadership to force a late-night session so early in the two-year cycle, but it made sense for Leonard to push the tax cut if he truly wanted to influence 2018 budget negotiations.

“From that standpoint, I think he’s being practical about it,” Shields said late Wednesday while the House was at a standstill. “However, given the nature of this issue, a lot of people think it’s moving too fast.”

The “messy process” is a reminder there’s “obviously a learning curve for a new speaker,” said Susan Demas, owner and editor of Inside Michigan Politics, noting Leonard struggled to secure votes despite a strong Republican majority.

“Usually if you’re going to take on something ambitious like this, you feel confident you’ve got the votes for it, and I think a lot of people assumed that Leonard had votes,” she said.

While Leonard may have frustrated some colleagues, Demas suggested his income tax cut push could still benefit him if he decides to seek the GOP nomination for attorney general in 2018, as many observers expect.

“Convention fights tend to be among the most conservative members of the Republican Party, and this is a policy that will play very well with them,” she said.

The budget effect

The House GOP tax cut plan was projected to save taxpayers — but cost state government — $1.1 billion a year if fully implemented.

Leonard and Chatfield on Tuesday backed off a more aggressive plan to eliminate the state income tax over 39 years. But Snyder remained opposed to the revised version, saying he had “a billion dollars worth of concerns” over the long-term budget impact.

Supporters said they wanted to fulfill a promise made in 2007 when then-Gov. Jennifer Granholm and state legislators temporarily raised the rate to 4.35 percent to balance the budget. The rate was scheduled to drop to 3.9 percent by 2015 but was frozen at 4.25 percent under Snyder.

“Not only is this good policy, it is the right policy, because in government there is nothing more important that keeping your word to the people,” Chatfield said.

State Rep. Scott Dianda of Calumet was the lone Democrat to support the tax cut plan, suggesting some of his constituents in his Upper Peninsula district “are starving.”

He noted the state budget has grown since he took office four years ago — from a $49.5 billion budget for fiscal year 2014 to Snyder’s 2018 plan for $56 billion.

The House plan would reduce projected tax collections by $195 million in fiscal year 2018, $463 million in 2019, $779.5 million in 2020, $1 billion in 2021 and $1.1 billion in 2022, according to the House Fiscal Agency. The “entire reduction would be borne by the general fund,” the state’s primary checkbook for discretionary spending.

The state is projected to pull in $10.29 billion in general fund revenue this year. That pot is expected to rise $232.6 million in fiscal year 2018 and $66.6 million in 2019. Leonard argued the tax cut plan would not have forced immediate cuts.

The Snyder administration has warned lawmakers that previously approved tax and fee reductions are set to drain state coffers by $2.1 billion over the next three years. Additionally, a new road funding law will draw revenue from the general fund, beginning with $150 million in 2019 and topping out at $600 million in 2021.

State Rep. Dave Pagel of Berrien Springs, one of 12 House Republicans to vote against the tax cut plan, called it “fiscally irresponsible.”

“It would put our general fund in too much trouble in a couple years,” he said. “It’s kicking the can down the road. If you’re going to force such drastic cuts, you should have the courage to do it now.”

Staff Writer Michael Gerstein contributed.