Dana Nessel calls income tax cut temporary. Republicans express fury
- In opinion, Michigan AG says law only requires a one-year tax cut, not a permanent cut
- Soaring state revenues are expected to trigger the cut
- Republicans bashed the opinion as attempt to avoid permanent cut
LANSING — A potential income tax cut triggered by soaring state revenues would be temporary, and the rate would return back up the following year, according to a new legal opinion by Attorney General Dana Nessel.
The formal opinion, requested by Michigan Treasurer Rachel Eubanks, comes as the state budget office finalizes revenue numbers that will determine whether the personal income tax rate must be reduced this year because of a 2015 law.
Nonpartisan fiscal agencies have already predicted that unusually high tax revenues in fiscal year 2022 could force the state to reduce the personal income tax income tax rate from 4.25 percent to as low as 4.04 percent under a triggering law passed by Republicans in 2015.
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GOP architects and their successors in the state Legislature contend those expected cuts should clearly be permanent under the 2015 law. But Nessel, a Democratic ally of Gov. Gretchen Whitmer, rejected that interpretation in a legal opinion that is binding on the state Treasury but could still be challenged in court.
The 2015 law states that Michigan’s “current” personal income tax rate “shall be reduced” if revenue growth from "the immediately preceding fiscal year" significantly outpaces inflation. But as written, that “current” rate reverts to the existing baseline rate of 4.25 percent each year, Nessel said Tuesday.
“Essentially, the legislature has determined that if a situation exists where a percentage increase in state revenue in the immediately preceding fiscal year is greater than the rate of inflation for that same year and the inflation rate is positive, then the state can afford to provide relief to taxpayers,” Nessel wrote.
“Because that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the (perhaps unusual) economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well.”
Republicans blasted the legal opinion but did not immediately indicate whether they will try to take the fight to court. Because Democrats control the Legislature, it’s likely any legal challenge would need to come from an outside group.
In a joint GOP press release, former Michigan Gov. Rick Snyder, House Speaker Kevin Cotter and Senate Majority Leader Arlan Meekhof each said the tax cut envisioned in the 2015 law they helped craft was meant to be permanent.
"The attorney general’s opinion today is an unreasonable overreach of what was agreed upon," Snyder said in a Tuesday statement. "Michigan taxpayers deserve the surplus dollars now and into the future.”
House Minority Leader Matt Hall, R-Richland Township, accused Nessel of teaming up with Whitmer and using “fringe legal theories to keep long-lasting relief out of people’s pockets.”
“Playing word games with the law doesn’t change the law,” Hall said, noting that nonpartisan fiscal agencies have described the potential cut as permanent. “Michigan taxpayers deserve lasting, real relief, not a temporary money mirage brought on by Democrats’ partisan tricks,” Hall said.
On Twitter, Senate GOP Minority Leader Aric Nesbitt of Porter Township, citing the state’s high surplus, argued that “state government is sitting on $9 billion of YOUR money, and Democrats are fighting tooth and nail to keep every penny of it from you.”
Michigan officials in January predicted the state's ongoing budget surplus could reach $9.2 billion by fall. But Whitmer and the Legislature have already agreed to spend some of that money, and the governor's $79 billion budget proposal would use most of the rest.
Nessel’s legal opinion is the latest front in a long-running tax policy battle in Lansing, where Whitmer last year vetoed broad Republican tax plans before working this year with new Democratic majorities to approve more targeted tax breaks for low-income workers and retired pensioners.
Tax relief legislation Whitmer signed into law earlier this month also proposed $180 “inflation relief” checks for Michigan taxpayers, but Republicans blocked those checks in order to preserve the expected income tax rate reduction.
Whitmer’s office did not immediately respond to a request for comment on Nessel’s legal opinion.
But in a late Tuesday statement, Whitmer spokesperson Bobby Leddy said the governor "has been focused on lowering cost for Michiganders" and the state now has "an opportunity to announce a third tax cut in as many months that will put even more money back into people's pockets."
The size and scale of any potential tax cut should come into focus Friday, when the state budget office is expected to release an annual Annual Comprehensive Financial Report detailing government revenues from fiscal year 2022.
Cutting the income tax rate to 4.04 percent, which experts say could be required under the 2015 law, would cost the state about $700 million in lost revenues.
Every Michigander who pays income taxes would see some benefit, but the state's flat rate means wealthier people would save the most money on a dollar-to-dollar basis. A single filer who earns $30,000 would save about $50 that year, while a filer who earns $1 million would save more than $2,000.
The 2015 law in question raised fuel taxes and registration fees to help fund road repairs. But to win over conservative lawmakers, then-Gov. Rick Snyder agreed to include a provision that would force an income tax rate cut in any year where the state was flush with excess tax collections.
It was “certainly negotiated as a permanent tax cut,” Snyder’s Lt. Gov. Brian Calley told Bridge Michigan earlier this week.
Calley, who now leads the Small Business Association, predicted that cutting the tax rate this year but then increasing it again back to 4.25 percent the following year would be “a very unpopular move.”
Calley noted that individual income taxes are the primary tax for small business owners. A previous attempt by the Whitmer administration to avoid a rate reduction by diverting state revenues into a corporate incentive program was “distasteful and offensive,” he said.
But Nessel’s interpretation is consistent with what the 2015 law as it was actually written, according to Steven Liedel, a Democratic attorney who served as chief legal counsel to former Democratic Gov. Jennifer Granholm.
"Perhaps they intended it — some folks who were involved in putting it back in 2015 — to be permanent, but that's not what they wrote," Liedel said. "The intent is not relevant. The actual language that you use is relevant."
The "current rate" referenced in the 2015 law appears to default each year to the existing 4.25 percent rate, Liedel said, agreeing with Nessel.
"I think that's the way a court is likely to interpret it.”
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