How to Lose Elections and Still Cut Taxes

Republicans in Michigan looked to be facing a bleak future after losing control of the state House, Senate, and governorship last year. Yet even with Democrats in control, quirky state laws could end up handing the GOP a long-sought priority: Cuts to Michigan’s state income tax.

With their once-in-40-year majorities, Michigan Democrats have been pursuing tax reform ideas that Republicans typically support wholeheartedly, including an expansion of the state’s Earned Income Tax Credit and a phaseout of pension taxes. But Democrats have also coalesced around a budget gimmick that would send one-time $180 rebate checks to every Michigan taxfiler. That’s what prompted pushback from Republicans: Instead of rebate checks, they have their sights set on leveraging a 2015 trigger law to reduce the state’s flat income tax—and achieving the other tax reforms.

Three factors have shaped the odd tax debate: the income tax trigger, a state constitutional provision requiring two-thirds majorities for a law to take “immediate effect,” and a budget surplus padded by an increase in tax revenue due to federal stimulus money and inflation.

Under the 2015 law, negotiated as part of a transportation funding deal when Republicans controlled the legislature and governor’s mansion, the state income tax is set to be reduced proportionately each year from 2023 onward in which general fund revenue growth exceeds inflation. At the time, those conditions looked unlikely to arrive any time soon. “No one ever really thought this would become a reality,” onetime GOP consultant John Helmholdt recalled of the measure.