We’re Suing to Save Michigan’s Tax Cut

M ichigan families and small businesses got unexpected good news this year: an income-tax cut. It happened automatically, thanks to a 2015 law. After several failed attempts to stop the cut from taking effect, state leaders have decided to ignore the law and raise taxes again at the end of this year. We’re suing to stop them.

Michigan law is clear. When the state’s revenue grows 42.5 percent faster than inflation, the income-tax rate gets cut — permanently. That happened in the last fiscal year, which is why the tax rate was cut by two tenths of a percentage point, to 4.05 percent. Yet in March, Attorney General Dana Nessel unilaterally declared that when lawmakers enacted the law eight years earlier, they “intended any income tax reduction . . . to be for that tax year only.” State Treasurer Rachael Eubanks subsequently declared that the tax cut would apply only in the 2023 fiscal year.

Based on the record-setting spending in the state budget passed in June, it is clear that the legislative majority plans to spend the extra tax dollars instead of returning them to hardworking Michiganders. If lawmakers want to reverse the tax cut, they have a perfectly legitimate way to do so: Pass a new law. The legislature and Governor Whitmer could easily introduce, debate, and enact a measure that either changes or repeals the 2015 law. That’s the legal way to stop a permanent tax cut. However, the governor and legislative majorities would rather ignore the law than take a tough vote.

Michigan families and small businesses will pay the price for our leaders’ selfishness. The tax cut gives the average family a modest savings of about $130 a year. Approximately 58 percent of small businesses in Michigan are pass-through entities, meaning they pay their business taxes through the individual income tax. Their annual relief can range into the thousands of dollars. This money goes a long way for businesses that are still recovering from pandemic shutdowns while facing rapid inflation and ongoing supply-chain issues. With a permanent tax cut, small businesses can reinvest the savings in their workers and operations, as they’re already doing this year. That will stop if the attorney general’s opinion stands and the tax cut disappears in December.

Job creators need all the help they can get. Our organizations represent Michigan’s small and independent businesses, as well as independent builders and contractors. Our members face an increasingly challenging economic environment. We’ve seen many anti-free-enterprise policies pushed through this year, with more coming. Job creators are paying the costs of these policies. A permanent tax cut is the only relief they’ve seen. Now, they’re set to lose it.

An even bigger loss is to the rule of law. Our elected officials are effectively saying they don’t care what the law states — they’ll do what they want. What family is going to move to a state that’s run like this? What small business is going to set up shop in a place that says political power is more important than democratically enacted policies? Many of our members have already said it’s getting harder to stay in Michigan. If this tax cut isn’t restored, as the law demands, the Great Lakes State may see its economic exodus accelerate.

We’re fighting to save our state. We filed our lawsuit in late August with the help of the Mackinac Center for Public Policy. We’re asking the Michigan Supreme Court to hear and rule on our case by December. After that, it will be too late to stop the tax cut from being wrongly shortened, meaning that families and small businesses will go back to paying more next year. The court must make clear that no politician can ignore the law — and that this tax cut is here to stay.

Shane Hernandez is the president of Associated Builders and Contractors of Michigan. Amanda Fisher is the Michigan State director of the National Federation of Independent Business (NFIB).