Showdown over Michigan tax cuts


The Michigan State Capitol building in Lansing.


Photo:

Junfu Han/Zuma Press

Michigan is sitting on a $13.4 billion budget surplus, and a debate over what to do with that windfall highlights the difference between Republicans and Democrats when it comes to tax policy.

Republicans who control the state legislature want to cut taxes broadly for nearly everyone in the state. Democratic Governor Gretchen Whitmer wants to increase spending and distribute corporate welfare for her pet political ends, particularly electric vehicle subsidies.

Earlier this month, the legislature passed a bill that would cut the personal income tax rate to 3.9% from 4.25%. The Senate Tax Agency estimates that the income tax cut would reduce revenue by about $1.09 billion in the 2022-23 fiscal year, the first full year these changes would take effect. Republicans also included a non-refundable tax credit of $500 per child. The latter is much less economically desirable and costs $750-800 million a year with little chance of recouping it in faster economic growth. But lawmakers believe it is a political inoculation against Democratic attacks on rate cuts.

The bill also increases the tax exemption for Michigan residents age 62 or older to $40,000 for individuals and $80,000 for couples. The exemption would apply to income from 401(k)s, IRA distributions, pension funds and other retirement funds.

The House also passed a bill providing for a $1.5 billion one-time payment for various underfunded retirement programs in the state. Michigan cities have about $11 billion in unfunded pension debt, and the state’s police system has about $800 million in pension debt, so this plan is worth passing in the Senate.

Ms. Whitmer called the Republican tax bill “fiscally irresponsible” and unsustainable”. The Detroit News reported on March 3 that she had urged Republicans and Democrats to negotiate a compromise and that she could veto the law Project.

The contrast with the Governor’s proposals is striking. Its $74.1 billion budget would be the largest in state history and would block further structural spending. She wants $18.4 billion for K-12 schools, an 8% increase, according to the Mackinac Center, a Michigan think tank. Some of his proposals omit charter schools, which serve about 10% of Michigan public school students. This is a godsend for the teachers’ unions.

On tax policy, Ms. Whitmer opposes broad-based tax relief in favor of targeted subsidies for certain businesses. She wants $500 million for the Strategic Outreach and Attraction Reserve Fund, which provides grants to attract favored businesses to the state. That’s on top of the $1 billion in corporate welfare lawmakers provided last year.

One winner was General Motors,

which received more than $666 million in incentives to manufacture electric vehicles and batteries. Ms. Whitmer also wants $50 million in state rebates for electric vehicle purchases.

Using the tax code for social purposes is a bipartisan issue, but the GOP proposals are fairer and better for Michigan’s economy. They are also a better way to manage excess income than to build a larger social and corporate welfare state.

Potomac Watch: With inflation at its highest level in 40 years, it’s time for Democrats to stop spending money and listen to Senator Joe Manchin, who says, when the economy burns, ” You no longer throw fuel on the fire.” Images: AFP/Getty Images Composition: Mark Kelly

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