Tax Reform

Michigan Taxpayers Head to Court: Income Tax Cuts Merely Temporary Relief?

Recently, the office of Michigan Attorney General Dana Nessel moved to dismiss a lawsuit aimed at keeping Michigan income tax cuts permanent.

Michigan taxpayers recently took legal action against State Treasurer Rachel Eubanks in an effort to uphold the permanency of their 2015 tax cuts. The 2015 tax reform package at the center of the lawsuit requires Michigan officials to reduce the state income tax if general fund revenue increased at a rate that exceeded that of inflation. Contrary to the intent of lawmakers in 2015, Michigan Attorney General Dana Nessel says those tax cuts provided merely, “temporary relief.”

The lawsuit, filed by the nonpartisan Mackinac Center for Public Policy on behalf of Michigan legislators, business associations including National Federation of Independent Business (NFIB) and other resident taxpayers, comes after an opinion by Attorney General Nessel, claiming the personal income tax rate reduction from 4.25% to 4.05% was intended to last only for tax year 2023. The Mackinac Center Legal Foundation, the firm representing the plaintiffs in the suit, state in their brief that not only is the Michigan law unambiguous, but clearly indicates that the tax adjustment formula does not authorize any tax increases, thus the rate should remain at 4.05% after 2023.

Plaintiffs also argue that even if the law was unclear, such ambiguities in tax statutes are to be resolved in favor of the taxpayer—resembling a common principle of criminal law known as the rule of lenity. Arguments made by the plaintiffs and the rule of lenity alike stem from two constitutional objectives. First, serving to uphold the separation of governmental powers by protecting the legislatures constitutional law-making prerogative and limiting the encroachment on a legislative function. Second, to ensure that fair notice is upheld and to secure individual rights to procedural due process. In the legal matter at hand, Michigan officials seem to fall short on both grounds.

Michigan Senate Republican Leader Aric Nesbitt, who served in the Michigan House of Representatives in 2015 and spearheaded the tax relief provision, recently stated: “the level to which Gov. Whitmer and Attorney General Nessel will go to deny the working people of Michigan tax relief has reached a new low. Despite sitting on a $9 billion surplus, and after dolling out billions in corporate welfare, Gov. Whitmer and the majority in Lansing have decided to deny taxpayers permanent tax relief. I was there in 2015, and it could not have been more clear what the language said or what our intent was.”

Plaintiffs in the Michigan suit, Associated Builders and Contractors of Michigan v. Eubanks, have requested from the court that a decision be made by December 15 of this year, prior to other triggering tax effects which would take place at the start of 2024.

Michigan taxpayers, and taxpayers in all other states, ought to remember that taxation is one of the most powerful tools a state wields over its citizens. Moreover, as the annual ALEC publication Rich States, Poor States showcases, these decisions about tax policy have a huge impact on the economic competitiveness of each state.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

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