Two Michigan lawmakers, two business groups and six other residents have joined together to sue Michigan’s treasury department to make permanent a temporary tax cut that took effect this year.
An increase in state revenues due in part to federal COVID-19 relief funds triggered a cut in Michigan’s income tax from 4.25% to 4.05%. The total cut is estimated at $714 million.
The cut happened because a 2015 law passed by Republicans – including lawsuit plaintiffs Sen. Ed McBroom of Vulcan and Rep. Dale Zorn of Onsted – dictated that if revenue grew faster than inflation, the income tax burden should lower accordingly.
Attorney General Dana Nessel issued an opinion in March advising Treasurer Rachael Eubanks that the cut should only last a year because the increase in revenue is not permanent.
“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,” Nessel wrote.
But plaintiffs argue the cut was intended to be permanent.
“When we debated passing the tax cut trigger in committee hearings and on the floor, it was perfectly clear to everyone there that the reduction was meant to be permanent,” Zorn said in a statement.
The lawsuit also argues the word “current” in the law means the new tax rate must stay put until a new trigger lowers it. Thus, if lawmakers would want to change the tax rate back, they would have to change the law.
The business groups on the suit are the National Federation of Independent Businesses and Associated Builders and Contractors of Michigan.
“Most small businesses in Michigan pay the personal income tax rate,” ABC president Shane Hernandez – also last year’s GOP lieutenant governor nominee – said in a statement. “This lawsuit protects them and all individual taxpayers from the more than half a billion-dollar tax increase set to go into place next year.”
The coalition of people and groups are represented in the suit by the Mackinac Center for Public Policy, a self-described free market thinktank based in Midland. It filed suit in the Michigan Court of Claims.
A decision is requested by Dec. 15. Read the lawsuit brief here and complaint here.
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