by Scott McClallen
A new lawsuit says Michiganders should get a permanent income tax break instead of one for just one year.
Lawmakers, including two plaintiffs, passed legislation in 2015 enacting 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 triggered a rollback of the rate from 4.25% to 4.05%.
The Mackinac Center for Public Policy filed a lawsuit against State Treasurer Rachael Eubanks (pictured above) that seeks to ensure Michigan preserves the income tax cut that took effect this year.
The center is representing Associated Builders and Contractors of Michigan, National Federation of Independent Businesses, Sen. Ed McBroom, R-Waucedah Township, Rep. Dale Zorn, R-Onsted, and six individual taxpayers from across the state.
“Most small businesses in Michigan pay the personal income tax rate,” Associated Builders and Contractors of Michigan President Shane Hernandez said in a statement. “This lawsuit protects them and all individual taxpayers from the more than half a billion-dollar tax increase set to go into place next year.”
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,” NFIB Michigan state director Amanda Fisher said in a statement. “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.”
Attorney General Dana Nessel issued an opinion in March saying the income tax reduction will only apply this year. The lawsuit argues lawmakers intended for the tax cut to be permanent. The nonpartisan House Fiscal Agency’s 2015 bill analysis stated the reductions would “continue indefinitely on an annual basis.”
The lawsuit says a clear reading of the law would indicate a permanent tax cut.
“This is about the law,” MCPP Vice President for Legal Affairs Patrick Wright said in a statement. “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.”
The Mackinac Center argues legislative history and the dictionary definition of the word “current” indicate the reduction is meant to stay at 4.05% until the trigger once again lowers the rate.
“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,” McBroom said in a statement.
The Mackinac Center requested an expedited case decision to provide clarity for the state’s 4.9 million taxpayers.
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Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi. In 2021, he published a book on technology and privacy. He co-hosts the weekly Michigan in Focus podcast.
