by Scott McClallen
Gov. Gretchen Whitmer and the GOP-dominated Legislature will soon battle over spending a $6 billion budget surplus.
Whitmer wants targeted tax breaks for retired Michiganders; family tax credits; and, perhaps most controversial, has announced a plan that would give private auto manufacturers more than a billion dollars, which many Republicans also support.
Meanwhile, the Michigan Senate approved a $2.5 billion tax cut that aims to drop the corporate income tax from 6% and the flat personal income tax from 4.25% to 3.9%.
Whitmer has called the Senate bill “unsustainable,” saying it would undermine her $74.1 billion budget for 2023 by spending one-time money on recurring expenses.
Bill sponsor Sen. Aric Nesbitt, R-Lawton, says a broad income tax cut for Michiganders and corporations would help everyone instead of funneling millions to a select few private companies.
“Reducing the tax burden across-the-board will help all taxpayers and encourage hard work, investment, and job-creation throughout our entire Michigan economy,” Nesbitt told The Center Square in an email. This tax relief will help taxpayers struggling with inflation and small businesses and all job providers already here, along with attracting more businesses and quality jobs to our state.”
Sen. Curtis Hertel, D-East Lansing, said the bill favored companies over Michiganders.
“This bill is nothing but a show; an attempt to pay off large corporate donors and does nothing for the people of Michigan,” Hertel said in a floor speech.
Michael LaFaive, senior director of fiscal policy for the free-market Mackinac Center for Public Policy, said the plan could grow the state’s tax base.
“Senate Bill 768 finally rolls back the 2007 [Gov. Jennifer] Granholm personal income tax hike that was promised to expire, but that promise has yet to be fulfilled,” LaFaive said in a statement. “Our research has shown that returning the personal income tax rate to 3.9% would create 15,000 new jobs for Michiganders in its first year alone. We thank the senators who approved this broad-based tax relief for Michigan families and businesses.”
The proposals aim to lure more people and businesses into Michigan and give tax relief from 40-year high inflation. The Citizen’s Research Council of Michigan says Michigan’s population only increased 0.8% between 2010 and 2018.
University of Michigan-Flint economics professor Chris Douglas said Michigan had lost Congressional seats for every census since 1980 due to the state’s population outflow.
Douglas recommended spending one-time funds on long-term projects such as fixing the roads, water, sewer – needs that take years to complete instead of a tax cut only sustainable for a short time.
“When you find a $1 to $2 billion hole blown into the budget deficit because of this tax cut, what spending will be cut? What taxes will be raised to cover that?” Douglas told The Center Square. “That’s undefined.”
While a significant tax cut might be attractive at the moment, Douglas said the government would either have to hike taxes or cut spending programs to compensate for revenue loss.
“I don’t think it’s ever good public policy to make permanent acts of spending changes based on one-time funding that works one year, but no other years after that,” Douglas said. “But I suppose this is an election year, so no one’s really thinking more than one year in the future.”
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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.
