Judge Rejects Permanent Income Tax Cut; Plaintiffs Will Appeal
January 1, 2024
Judge Elizabeth Gleicher adopted the state’s argument that the tax reduction from 4.25 percent to 4.05 percent would apply only to 2023 state income taxes, noting that it had to be temporary or else the rate may one day go to zero.
“Logically, it would make little sense to provide a permanent tax cut based on economic circumstances that exist in one calendar year,” Gleicher wrote. “The Legislature did not indicate in the language of MCL 206.51 that it intended a continuous reduction in the income tax rate.”
Rep. Dale Zorn (R-Onsted), one of the 2015 lawmakers who voted on the tax cut law, said the law was drafted “so that any income tax rate reduction would be permanent” and the error should be corrected on appeal.
Sen. Ed McBroom (R-Waucedah Twp.), another 2015 lawmaker who voted on the tax cut law, said supporters and opposition at the time “recognized the potential that it could lead to a tax rate of zero, but only if times were so good that we didn’t need to collect taxes anymore.”
That scenario, the plaintiffs argue, is “extraordinarily unlikely.”
“This decision is very disappointing, but it follows the usual trend of the current administration to protect its revenue and take more taxes from people, even when the law was so clearly written to reduce that burden on taxpayers,” McBroom said.
The Mackinac Center for Public Policy, which said it will appeal, sued the Department of Treasury on behalf of McBroom, Zorn, the Associated Builders and Contractors of Michigan, National Federation of Independent Business Inc. and six individual taxpayers from across the state.
The plaintiffs alleged the tax rate cut should remain in place, despite an opinion from Attorney General Dana Nessel that said the cut only applied to 2023.
Part of the debate on this law concerned the meaning of the phrase “then the current rate shall be reduced.” A permanent reduction was set to occur any time revenue outpaced inflation by a significant amount.
“In effect, the decision eliminated the word ‘current’ from the statute,” said Patrick Wright, vice president for legal affairs at the Mackinac Center. “That word is important because it sets a tax-rate ceiling. Contrary to the judge’s opinion, ‘current rate’ means the tax rate can only go lower.”
The judge’s interpretation would cost Michigan’s 4.9 million taxpayers $714.2 million in 2024, according to the Mackinac Center.
Article courtesy MIRS News for SBAM’s Lansing Watchdog e-newsletter