CLICK BELOW TO LISTEN TO JACK HALL’S INTERVIEW WITH SEN. ED MCBROOM
The Mackinac Center for Public Policy filed a lawsuit today against the state treasurer. The lawsuit seeks to ensure Michigan follows the law by preserving the income tax cut that took effect this year. The Center is representing Associated Builders and Contractors of Michigan, National Federation of Independent Businesses, Upper Peninsula State Senator Ed McBroom (R-Norway), Representative Dale Zorn (R-Onsted), and six individual taxpayers from across the state.
Lawmakers, including two of the plaintiffs, passed legislation in 2015 that incorporated an income tax reduction trigger that lowers the current rate when the state’s revenue outpaces inflation by a set amount. Last year’s state revenue was high enough to trigger a rollback of the rate from 4.25% to 4.05%.
“In 2015, as part of the road-funding package, we specifically included a provision that if the state found itself with a lot of money, then there would be a roll-back of the income tax,” McBroom told RRN News on Wednesday. “Right now, of course, the state has found itself with a lot of (federal COVID) money, a billion dollar surplus, and so, we should have an income tax rollback. Well, all of a sudden, this spring, the governor and attorney general worked together to come up with a new idea, which is that the rollback is only good for a year, then it pops back up to where it was.”
Indeed, Attorney General Dana Nessel issued an opinion in March stating that the income tax reduction will only apply this year. But McBroom and the other plaintiffs say that when the law was passed, there was a clear consensus from politicians on both sides of the aisle and the media that the rate reduction would be permanent. The House Fiscal Agency’s 2015 analysis of the bill stated that the reductions would “continue indefinitely on an annual basis.”
“This is complete bunk,” McBroom said. “It’s not even what the opposition said after we voted. They were apoplectic that this would lead to a zero-percent tax rate over time. Now, all of a sudden, they’re acting like they never said that. They’re just wrong. And so I was asked to sign on as a litigant in this lawsuit, and I did.”
This lawsuit seeks to stop the state treasurer from raising the income tax next year. If successful, the lawsuit will prevent an annual tax hike of around $700 million.
“The tax cut was a welcome relief to Michigan’s small businesses,” said Amanda Fisher, Michigan state director for the NFIB. “As small employers plan their expenses, it is important that they have certainty in what tax provisions are offered. If the attorney general’s interpretation is upheld, it will cause significant tax burdens on small businesses at an already fragile time in the economy.”
McBroom says the legislature could pass a new law to clarify this, but with Democrats in control of both the House and Senate, and of the governorship (this was a GOP-led law back in 2015), he says the only option now is to go to court.
“I think the evidence is very clear, the language (in the 2015 law) is very clear,” McBroom added. “They don’t want to lose the revenue stream that they think they can get, especially to match all of the crazy spending that’s being approved.”
The Mackinac Center argues that legislative history and the dictionary definition of the word “current” indicate that the reduction is meant to stay at 4.05%, until the trigger once again lowers the rate. If lawmakers want to avoid these rate reductions and increase taxes, they must change the law.
“When we passed this particular issue, those opposing it were clear they understood it was a permanent drop — they even complained it could lead to a 0% rate eventually,” said Sen. McBroom. “Now they have created a novel interpretation to suit their present need and have thrown the people and the Legislature into an uncertain position. This lawsuit will provide the people and the Legislature with the certainty they need and deserve that the law does what it says and the tax reduction will continue.”
The Mackinac Center is requesting that the case be decided on an expedited basis to provided clarity for the state’s 4.9 million taxpayers.
“This is about the law,” said Patrick Wright, vice president for legal affairs at the Mackinac Center for Public Policy. “A clear reading of the statute shows that lawmakers put in place a permanent income tax rate reduction. The personal income tax rate on all Michigan citizens went down to 4.05% and should stay there absent new legislation.”
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