Whitmer administration working to stop automatic income tax cut

Michiganders could see a tax cut triggered by the COVID-19 recession. The governor would prefer to spend the money.

Michiganders could be in line to get a cut in their state income taxes, but Gov. Gretchen Whitmer’s administration hopes to block it from taking effect.

The Democratic governor argues the state needs the tax revenue because of the pandemic and the state’s pre-existing financial trouble. But residents struggling with the worst economic downturn since the Great Recession are in dire need of a pay hike.

If the cut goes into effect, savings for taxpayers would vary based on their income. Statewide, the tax cut is projected to save Michigan taxpayers as much as $330 million in fiscal year 2023 and $600 million in 2024.

Here’s the background: Tucked away in a 2015 road-funding bill is a provision – a so-called “trigger” – which forces the state to lower its personal income tax rate, beginning in 2023, if overall taxes collected for the state’s general fund exceed the rate of inflation. The provision in the bill, which was signed into law by former Republican Gov. Rick Snyder, was designed to restrain out-of-control government growth and spending.

If the economy rebounds as expected after the pandemic, the state’s general fund revenue also will spike – likely exceeding inflation and triggering the tax cut for 2023.

The Whitmer administration, however, wants lawmakers to adjust the trigger in the Michigan law, arguing that state government cannot endure a funding cut because of the pandemic and the state’s already-troubled finances. Business closures ordered by Whitmer are already causing significant revenue shortfalls for the state.

Whitmer’s press office did not reply to a request for comment. But on Aug. 26 her administration’s budget director, Chris Kolb, told Bridge Michigan the potential tax cut is “definitely on our list of issues that need to be addressed.”

Sen. Jim Runestad, R-White Lake, said there’s no need for immediate action on the tax-cut trigger because the pandemic has caused so much uncertainty about future state tax revenue.

One possible reason for any urgency by Whitmer and some lawmakers is this: If they can get the tax cut blocked now, voters might forget about it by the time the 2022 election rolls around.

Economists generally agree tax increases are a bad idea during a recession. Former President Barack Obama supported that notion, saying in 2009: “The last thing that you want to do is raise taxes during a recession, because that would just … take more demand out of the economy, and put businesses in a further hole.”

So it follows that a tax cut could be a positive step in recovering from the COVID-19 recession. Whitmer would be wiser to let people keep their money in the economy where it will produce value, rather than reneging on the deal state leaders made with taxpayers by enacting the trigger provision in the first place.