A 2015 law that appears poised to cut Michigan’s 4.25% state income tax would only keep that cut in place for one year, according to an advisory opinion published by Attorney General Dana Nessel Tuesday.
The law, passed by Republicans during the administration of Gov. Rick Snyder, dictates that if government revenue grows faster than the rate of inflation in a given year, the state income tax rate is automatically cut proportionate to the excess over a certain threshold.
What it didn’t explicitly instruct, however, is whether the tax cut should be a permanent or temporary measure. And Tuesday afternoon, Nessel, in response to a formal question from state treasurer Rachael Eubanks, determined each cut should only last a year.
“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,” the Nessel-signed opinion said.
While the advisory opinion isn’t the final say on how the policy should be implemented, it will be binding for the Treasury and would require a lawsuit or new legislation to overturn it.
In a statement released just hours after the opinion, the three Republicans who lead state government when the law was passed refuted the attorney general’s interpretation.
Both former Gov. Rick Snyder and then-Speaker Kevin Cotter said in statements the income tax was meant to be permanent, while then-Senate Majority Leader Arlan Meekhof said, “if Gov. (Gretchen) Whitmer and Michigan Democrats want to deny that relief and raise taxes on Michigan families, they should draft a bill and vote on it.”
Heading into the next fiscal year, Michigan is enjoying a record budgetary surplus, which analysts estimated may be as large as $9 billion after a 14% jump in revenue. The cut in taxes was also estimated to be around 0.2%, to 4.05%, if those projections hold. Those final numbers are expected to be released this week.
Related: Michigan projects $9.2 billion surplus, possible income tax cut
Republican leaders immediately voiced their disagreement. House Minority Leader Matt Hall said in a statement “the language, history and legislative intent of the law all make clear that the tax cut should be permanent.
“Playing word games with the law doesn’t change the law,” he said. “Michigan taxpayers deserve lasting, real relief, not a temporary money mirage brought on by Democrats’ partisan tricks.”
The law itself became the central inflection point in negotiations over Democrats’ recently completed tax package. The combination of cuts and payments proposed by Democrats in February would have retroactively diverted money from the last fiscal year to taxpayers in the form of $180 “inflation relief” checks.
Republicans immediately decried the plan as an effort to head off a tax cut by reducing revenue and quickly united in opposition against legislation which had initially drawn significant bipartisan support. Democrats then failed to garner the two-thirds votes necessary to implement that key provision and bills were signed into law by Gov. Gretchen Whitmer without it.
Throughout the process, Democrats avoided directly addressing any consequence the state’s future fiscal situation — whether an automatic income tax cut would be triggered, how large the cut might be, if they wanted to prevent a tax cut — opting instead to tout the benefits of immediately sending money back to taxpayers.
Tuesday’s opinion from Nessel undercuts the central argument behind Republican legislators’ opposition: that a permanent reduction in the taxes Michiganders pay trumps a one-time payment.
A House Republican spokesperson said they hadn’t yet determined whether to fight the interpretation in court.
“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,” Sen. Aric Nesbitt, R-Porter Township, responded on Twitter. “Republicans will fight just as hard to put your money back in your pocket.”
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