Incoming tax cut in Michigan will only be temporary, state AG says

LANSING, Mich. (AP) - Michigan Attorney General Dana Nessel said Tuesday that an income tax rate reduction expected to be triggered for the 2023 tax year by the state’s high revenues will be temporary and will revert back to the normal rate the following year.

Nessel’s opinion, which the state is expected to follow, comes after the state House Fiscal Agency predicted in January that Michigan’s revenues have been running high enough to automatically trigger a drop in the income tax rate to 4.05% from 4.25%, under a 2015 law. The reduction will save Michigan taxpayers an estimated $700 million.

The law, enacted by the Republican-controlled Statehouse at the time, provides a mechanism to reduce the income tax rate when the percentage increase in the general fund exceeds the inflation rate during a fiscal year.

"Because that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well," wrote Nessel, a Democrat, in an opinion addressed to state Treasurer Rachel Eubanks.

In a joint statement with other Republican leaders released after Nessel’s opinion, former Gov. Rick Snyder, who led Michigan from 2011 to 2019, said the law "was intended to be a permanent reduction activated when the state government had a large surplus."

"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," Republican Senate Leader Aric Nesbitt said on social media.

Last month, Democratic Gov. Gretchen Whitmer unveiled a record $79 billion budget for the 2024 fiscal year after her budget director, Chris Harkins, predicted in January that Michigan’s surplus could exceed $9 billion by the end of year. Whitmer also announced plans to send $180 "inflation relief checks" to all tax filers, which would have cost the state around $800 million and lowered revenues enough to avoid the trigger.

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With a slim majority in both chambers, Democrats weren’t able to secure the votes necessary for the $180 checks to be sent this year, and Senate Majority Leader Winnie Brinks, a Democrat, had said the income tax reduction was "likely" to be triggered.

Democrats were able to pass legislation phasing out taxes on public and private pensions and significantly expanding the state’s Earned Income Tax Credit from the current 6% to a 30% match of the federal rate.