Proposed Michigan tax ‘fix’ prompts talk of tax cuts

Jonathan Oosting

Lansing — Tax cut fever is back in Michigan’s Republican-led Legislature, where leaders are angling for additional relief as GOP Gov. Rick Snyder requests opening the tax code to prevent an unintended hike created by the recent federal overhaul.

Snyder and Lt. Gov. Brian Calley on Monday proposed a “fix” to restore the state’s $4,000 personal exemption that the new federal law effectively eliminated. They also pitched a modest increase in the exemption, which would hit $4,500 by 2021 instead of a planned $4,300.

That $200 bump would mean a collective $50 million state tax cut for Michigan residents once fully implemented, according to the Treasury Department. Senate Majority Leader Arlan Meekhof said many legislators have an appetite to do more.

“I would just say it’s a good start,” the West Olive Republican said of Snyder’s plan. “I think there’s more we can do to put people’s money back in their pockets.”

The House early last year narrowly rejected a plan to cut state income taxes amid opposition from Snyder, who warned it would compound looming budget pressures. But chairmen of the House tax and Senate finance policy committees remain interested in reducing the rate from 4.25 percent to 3.9 percent, as envisioned under a 2007 law that Snyder froze in 2011.

Snyder’s new proposal to protect and increase the state’s personal exemption by $200 is “not tax reform,” said Sen. Jack Brandenburg, R-Harrison Township, noting Treasury officials’ projections of less than $35 in annual savings for a family of four.

“Thirty-five dollars wouldn’t keep me in beer for the better part of a week,” Brandenburg said. “I’m serious. It’s not tax reform. Michigan residents have not had any meaningful tax reform in 20 years.”

The tax law signed by President Donald Trump last month is designed to cut federal taxes for most individuals until 2026. But the plan eliminated exemptions that are carried over to state forms, a change the Snyder administration says could cost Michigan taxpayers a collective $1.5 billion a year.

Restoring the exemptions is “time sensitive” even though Michigan families wouldn’t see the tax bill until next year, said Rep. Jim Tedder, a Clarkston Republican who chairs the House Tax Policy Committee and wants additional state cuts to be part of the debate.

“I still think we’ve got a number of weeks to get this right, not to be knee-jerk about this,” Tedder said. “I think the low-hanging fruit is to preserve the status quo and move on. But it’s also a prime opportunity ... to broaden the discussion.”

The tax talk heated up Wednesday as legislators returned to Lansing for the first session day of 2018 and met in caucuses behind closed doors. State officials are set to meet Thursday for a Consensus Revenue Estimating Conference that will be used to set spending targets for the 2018 state budget.

House and Senate fiscal agencies are not proposing major revisions to May revenue estimates used to craft the current budget, but the Senate Fiscal Agency last month projected the state could end the fiscal year with $285.6 million in extra general fund dollars.

The Snyder administration has resisted aggressive income tax cuts, citing approximately $2 billion in future budget promises already approved by the Legislature, including a $600-million-a-year dedication to road repairs.

While state budgets have grown under the governor’s watch, revenue pouring into the general fund — the state’s main source for discretionary spending — remains below fiscal year 2000 levels, according to the Senate Fiscal Agency.

Snyder is “willing to consider a future tax cut or rollback,” said spokeswoman Anna Heaton, but he “prefers this exemption issue be dealt with first and foremost, as the simple and quick fix will prevent a lot of confusion for individual taxpayers and small businesses.”

Rep. Mike McCready of Bloomfield Township, one of 12 Republicans to vote against the House income tax cut plan in February because of budget concerns, said he agrees with the governor’s approach but is willing to consider alternatives.

“We shouldn’t bog this down,” McCready said. “We can always look and talk about other things. But I think the families of Michigan need and deserve that $4,000 tax exemption, and I think we shouldn’t let something else get in the way.”

Democrats opposed last year’s House income tax cut plan, arguing that reducing the flat rate would produce bigger dollar-to-dollar savings for wealthy residents. House Minority Leader Sam Singh, D-East Lansing, has indicated he would like to restore the state Earned Income Tax Credit that was reduced seven years ago.

Senate Minority Leader Jim Ananich, D-Flint, said Tuesday he is interested in pursuing an “equitable” form of tax relief as legislators go back into the tax code to address the federal issue.

The federal overhaul will benefit corporations more than individuals, Ananich said, noting 2011 tax code changes approved by Snyder also cut business rates but eliminated several exemptions and credits for individuals.

“We’ve seen a lot of tax increases the last seven years, and too many families have fallen behind,” Ananich said. “I’m not proposing what that tax relief should look like yet, but I want to make sure it’s evenly spread out.”

Ananich said increasing the personal exemption even more could be a fairer form of tax relief than an income tax cut. He also co-sponsored a bill to accelerate a tax break for vehicle trade-ins that Snyder vetoed in July.

Meekhof said he is not against a potential income tax cut but said last year’s House plan was “problematic” because the lower chamber did not identify spending cuts to make up for the resulting revenue reduction.

“Whatever we do, it needs to be realistic to people,” Meekhof said. “It can’t just be a token thing. We must be very judicious also about it and look at our responsibilities in terms of the state debt and other things.”