LANSING, Mich. (AP) — A top Republican lawmaker on Wednesday strongly criticized Gov. Gretchen Whitmer’s proposal to raise taxes on some businesses to help ease the burden on retirees, calling it “stupid.”
The Democrat’s budget proposal would reverse parts of a tax rewrite enacted by former Republican Gov. Rick Snyder and the GOP-led Legislature in 2011. Whitmer contends that the moves are needed to soften the impact of her proposed 45-cents-a-gallon fuel tax increase to fix the roads, and to restore tax breaks for pensioners and low-income earners.
“I’m going to say this as gently as I possibly can: Taking actions like that would be doubling down on stupid,” said Senate Majority Leader Mike Shirkey of Clarklake. “We do not need to go back to old forms and old techniques and old gimmicks. We need to stay focused on what we’ve been doing the last eight years.”
The 2011 law slashed business taxes — including by subjecting fewer companies to a new restructured tax — while effectively raising taxes on retirees, homeowners, low-wage workers and taxpayers with children by eliminating or reducing several deductions and credits.
Shirkey, speaking to reporters a day after Whitmer’s budget address, also was wary of the fuel tax hike.
“The citizens of Michigan, especially the folks that actually work for a living, cannot absorb a 45-cent increase in the gas tax. They just can’t do it,” he said, agreeing that $2.5 billion more is needed for transportation infrastructure but adding that he had yet to hear the “best ideas” to generate new revenue. “We have to talk about and consider the appetite, the ability to absorb those kinds of things.”
Whitmer’s office did not comment on Shirkey’s criticism of her proposed changes to business and income taxes but said she “is willing to work with anyone who is willing to work with her” to get $2.5 billion more annually to fix the roads and address other priorities.
“If he or anyone else has a real solution that gets to 90 percent of state roads in good/fair condition, then she’d be willing to have a serious conversation about it,” said spokeswoman Tiffany Brown.
Whitmer proposes boosting taxes on 150,000 corporations, partnerships and limited liability companies. Income from those entities was once taxed at the same rate as traditional corporations, but under the 2011 overhaul, income passed through to the entities’ owners is taxed at the personal rate of 4.25 percent.
Whitmer says taxing them at the equivalent of the 6 percent corporate rate would provide $280 million to mostly offset repealing the taxation of retirement income. The net tax hike on business owners would be roughly $100 million because the state “pass-through” tax would be deductible for federal tax purposes.
Shirkey said S corporations — which pass income through to shareholders for tax purposes — are the types of businesses that “generate the most innovation and the most jobs, and we should make sure that Michigan stays very competitive and attractive to the investment of capital.”
Democrats supported Whitmer’s plan, however.
Senate Minority Leader Jim Ananich of Flint called it “fair” and said business groups want the government to improve infrastructure and develop a talented workforce, and “taxes is moving farther and farther down the list” in importance.
“What we used to have before the (corporate tax) was offices were treated equally,” he said. “That’s what the governor came forward with in a way to relieve seniors of a tax obligation that they weren’t prepared for. This seems like a very fair way to do it, and we’ll keep talking about it.”
Sen. Curtis Hertel Jr., an East Lansing Democrat, said residents “cannot bear the entire cost of fixing Michigan’s government,” and corporate taxes account for 5 percent of general fund revenues.
“I don’t think anyone would think that was equitable,” he said.
During a hearing before the Senate Finance Committee on Wednesday, Chief Deputy Treasurer Jeff Guilfoyle was asked by a Republican if the new business tax would encourage or discourage small companies to spend and expand. He said he did not think it “would lead to a significant change in taxpayer behavior,” adding that the 2011 business tax cut was “very large” while Whitmer’s proposal would be a “small increase back up.”
Guilfoyle said there has been “significant interest in a lot of quarters in undoing” the changes to how retirement income is taxed. A GOP-led House committee voted overwhelmingly last week to repeal the so-called pension tax.
Whitmer also wants to double the state earned income tax credit, from 6 percent to 12 percent of the federal credit. It was 20 percent but was scaled back as part of the 2011 law. She says it would offset the impact of her higher gas tax on low-income working families. The maximum credit for families with two children would rise to $583 for the 2019 tax year, up from $343 for the 2018 tax year, according to the state budget office.