CHAD LIVENGOOD

Livengood: Why there's no tax cut in the state budget

Chad Livengood
The Detroit News

Michigan lawmakers left Lansing Friday morning with $7 billion in surplus tax money sitting in the state's coffers and no deal with Gov. Gretchen Whitmer on giving Michiganians hit hard by inflation some of their money back.

That's how much money is left over even after the annual budget ballooned from $70 billion to $76.7 billion as Democratic and Republican lawmakers went on an epic spending spree.

There was something for everyone in this budget: Record spending on roads and K-12 schools, a massive infusion of cash into ailing municipal pensions, a new college scholarship program and outlays for pet projects that ranged from a cancer research center at Wayne State University to a curling club in Traverse City.

Something for everyone, except the folks who actually pay the bills — the taxpayers.

Michigan Senate Majority Leader Mike Shirkey, R-Clarklake, told The Detroit News he is open to negotiating with Gov. Gretchen Whitmer about raising the per-gallon tax on gasoline and diesel as part of a deal to remove the sales tax on motor fuel.

If a Democratic governor and a Republican-controlled Legislature can't find a way to divvy up some of that $7 billion now to taxpayers, when will they?

Certainly not if there is an emergence of an economic recession, which would send sales and income tax revenues plummeting as people get laid off, stop buying big-ticket items like new cars and washing machines, and rein in going out for dinner.

Lawmakers and Whitmer have been sitting on this money for months — and there's no shortage of ideas about how to return some of it to taxpayers.

Whitmer wants to dole out $500 "inflation relief" checks to every taxpayer — immediate tax relief they can see and feel in their pocket instead of a small cut in Michigan's 4.25% personal income tax that only accumulates into significant dollars over time.

The governor still wants to restore a special tax exemption for pensioners that Republicans erased from the tax code in 2011 to help balance the budget that year after they cut taxes for businesses by $1.8 billion.

Whitmer also wants to increase the Earned Income Tax Credit to pre-2011 levels — a proposal backed by some Republican-friendly business groups.

GOP lawmakers have other ideas. They've already sent Whitmer multiple bills seeking to slash the income tax and suspend the state gas tax for six months — and the governor vetoed them all. Her overarching reason is she argues the record tax surpluses may be a one-time blip.

Her proposed $500 rebate checks would spend down an estimated $3 billion from the $7 billion budget surplus.

Republicans want permanent tax relief, not an immediate rebate check that would give Whitmer a new selling point in her re-election bid this fall.

And that's one of the reasons why the governor and Legislature couldn't come to an agreement on tax relief before the traditional summer recess (when legislators go home to campaign for re-election).

Republicans have already watched how Whitmer capitalized on a $5 billion refund from the injured drivers' trust fund that resulted in $400-per-vehicle refund checks to every motorist this spring. (Just to be clear, Republican lawmakers could tout this win as well. They wrote the bill that Whitmer signed in May 2019.)

Whitmer and fellow Democrats are touting those checks at every turn as they combat souring electoral prospects this fall amid record-high gas prices and rising costs for everyday household items and food.

Senate Majority Leader Mike Shirkey, R-Clarklake, said Friday that a one-time tax refund check is "not negotiable" and "off the table."

"That's not a sustainable thing, it's not a systemic thing, not a lasting thing and I'm not very interested from a legislative standpoint," Shirkey told The Detroit News.

One area the Senate majority leader is open to negotiating with Whitmer on is raising the per-gallon tax on gasoline and diesel as part of a deal to remove the sales tax on motor fuel, which is largely dedicated to schools, not roads.

Shirkey confirmed he floated the idea during budget talks and said he could get the votes needed to pass an increase in the 27-cent-per-gallon gas tax so long as there was a "net tax reduction" through the elimination of the 6% sales tax on fuel.

The Republican-controlled Legislature sent Democratic Gov. Gretchen Whitmer a $76.7 billion budget plan early Friday morning that leaves $7 billion on the table for potential tax relief at a later date.

"I'm willing to talk about increasing the excise tax so that we can increase road funding," Shirkey told The News.

With gas hovering at $5 per gallon, the sales tax adds about a quarter to the cost of every gallon of gas. Shirkey declined to say how much he'd be willing to raise the per-gallon gas tax as part of a deal to eliminate the sales tax on fuel.

"I'm not prepared to talk about that yet because when you start doing that people just start throwing darts at it and cutting it up," Shirkey said. "In general, we can do a substantial increase in ongoing road funding with the current structure through the excise tax and relieve the pressure of ever-increasing costs at the pump for drivers by eliminating the sales tax on gas."

The Senate GOP leader suggested the loss of sales tax from fuel could be made up by growth in tax revenue in the School Aid Fund — a potential cover for lawmakers wary of tinkering with money for K-12 schools.

Shirkey said a group of senators will resume working next week on potential tax relief plans.

"We're not done yet," he said.

If no deal on tax relief can be reached this summer, it's entirely plausible the Legislature will sit on the surplus to see what happens with the economy and the governor's re-election campaign. 

If the economy sours fast, the pile of cash would come in handy for a truly rainy day, regardless of who the governor is in January.

Save for the short-lived recession in 2020 from Whitmer's shutdown of large swaths of the economy to slow the spread of COVID-19 early in the pandemic, Michigan really hasn't weathered a recession since emerging from the Great Recession in 2010.

Senate Minority Leader Jim Ananich, D-Flint, said conventional political wisdom that Republicans wanted to deny Whitmer a victory on tax relief is wrong.

It's much more nuanced and complicated by lawmakers trying to make a July 1 deadline to pass a budget — something that hasn't been accomplished in this divided government — and a slew of legislative primaries that have lawmakers on both sides of the aisle consumed this summer, Ananich said. 

"I feel like people are looking for reasons to say we're fighting when we're not," Ananich said Friday. “With the contentious primaries that all four caucuses are dealing with, I actually think it will get easier as time goes on, not harder. I think right after the primary is a perfect time to come together and actually let people think logically (about tax relief) because there's a window when nobody is logical."

If Ananich is right, taxpayers struggling with rising costs could see some relief after the dust settles on Aug. 2 and logic is restored at the Capitol that taxpayers should get a piece of the pie.

clivengood@detroitnews.com