The Mackinac Center for Public Policy says Michigan’s taxpayers need relief.
Earlier this month, the Michigan Court of Appeals unanimously ruled that the state’s individual income tax rate should remain at 4.25% after a temporary decrease to 4.05% in 2023 that was triggered by an increase in state tax revenues.
Representatives of the Center have submitted an appeal to the Michigan Supreme Court saying the Michigan appeals court decision runs counter to decades of economic data that the 2015 Legislature was aware of when it passed legislation that would trigger a permanent income tax cut.
The case centers on a 2015 law that implemented a tax cut trigger. The income tax rate is lowered when the state’s revenue outpaces inflation by a set amount. Excess revenue sources in 2022 triggered a tax cut, so Michigan residents saw their income tax rate fall from 4.25% to 4.05% in 2023. The Center argues the rate reduction was intended to be permanent, but after seeking an opinion from Attorney General Dana Nessel, State Treasurer Rachael A. Eubanks announced that the rate would go back up to 4.25% in 2024.
For the state, the decision to raise the tax rate back to 4.25% means an additional $700 million in revenue. For the average Michigan family making $80,000, it means a tax increase of about $160 per year.
The appeal was filed by the Mackinac Center on behalf of Associated Builders and Contractors of Michigan, National Federation of Independent Business, Inc., Senator Ed McBroom, Representative Dale Zorn and six individual taxpayers from across the state.
The Center argues that the Court’s unrealistic presumption that a permanent reduction in the income tax rate could in time lower the rate all the way down to 0%. For that to happen, the state’s general fund revenue would have to increase by 230% in a single year. Last year’s general fund revenue was $12.9 billion. Under current conditions, the state’s general fund revenue haul would have to jump to $27.9 billion in one fiscal year. Given that over 60% of general fund revenue comes from the income tax, remaining revenue sources like the sales tax or liquor tax would have to experience explosive growth that would be impossible without a radical restructuring of Michigan’s entire tax system.
You can read the full brief from the Center here.
