The Republican-led Michigan Legislature voted Wednesday to override Gov. Rick Snyder’s veto of a speedier tax cut for those who trade in their car for a new one, the first override in his tenure and just the fourth in the last 67 years.
Senate Majority Leader Arlan Meekhof said the “timing was right” — the same day the chamber approved a bill to keep intact and boost Michigan’s personal tax exemption, which is at risk of being eliminated under the recent federal tax overhaul due to the way the state tax code is linked to the U.S. code. He and House Speaker Tom Leonard downplayed any concerns that the override will cause a rift in their relationship with the Republican governor.
“I’m more focused on the money that the taxpayers send us — how much more of it should be put back in their pocket,” said Meekhof. Senate Democratic Leader Jim Ananich said the override vote was “long overdue.”
The Senate voted unanimously to override Snyder. The House voted 85-23 — more than the two-thirds support needed.
Lawmakers had been seriously considering an override since July, when Snyder turned down legislation to accelerate the sales tax break for car buyers. He cited “additional financial strain” for the state and said the bills conflicted with a previous compromise to phase in tax relief for those looking to offset the cost of an automobile or RV with a trade-in.
In response to the override and senators’ separate passage of a larger tax cut proposal, Snyder said economic growth under his watch has allowed the state to phase out taxes on business equipment, increase a tax exemption for homeowners and boost spending to improve roads. But those laws had a “payment plan,” he said in a statement.
“Changing the tax code without a plan to pay for it challenges the conservative fiscal responsibility of the past seven years,” Snyder said.
Overrides are rare, having only occurred previously in 2002, 1977 and 1951.
“It is not something we do very often or without serious thought and consideration,” said Sen. Dave Hildenbrand, a Lowell Republican and sponsor of one of the bills. He said the laws provide tax relief and boost Michigan’s auto industry, which is in the spotlight during the ongoing North American International Auto Show in Detroit.
A law enacted in 2013 lets those who purchase a car or RV subtract the value of their trade-in from the sales price of a new one for tax purposes. The laws passed Wednesday more quickly phase in how much of the trade-in value can be deducted.
The credit now is $4,000 — saving people up to $240 in taxes — and rises $500 annually until 2039, at which point there will be no limit on the trade-in value excluded from taxation. The laws speed the phase-in of the tax break for car purchases to 2029, a decade sooner. The trade-in credit jumps to $5,000 in 2019 and increases by $1,000 each year after.
The laws also fully exempt from taxation the value of an RV trade-in used to buy a new RV, mirroring a provision for boats included in the 2013 law.
The nonpartisan House Fiscal Agency said the state will lose an extra $2.1 million in the first fiscal year under the legislation and about $3 million more each year after, mostly in the $14 billion-plus fund that pays for K-12 schools.
Before the 2013 change was made, Michigan was among just six states that applied its 6 percent sales tax to the full price of a vehicle, with no trade-in deduction.
“I’ve never understood this gimmick of double and triple taxation on vehicles,” Leonard said.
Also Wednesday, the Senate unanimously backed a bill that would gradually raise the personal tax exemption to $5,000, with future inflationary adjustments. That is $700 more than the current planned raise, equating to an annual $30 tax cut per individual.
Snyder has proposed keeping intact and boosting Michigan’s personal exemption to $4,500 to offset unintended consequence of the federal tax cuts. But he has budgetary concerns with going beyond that.
The sponsor of the tax cut, Sen. Jack Brandenburg of Macomb County’s Harrison Township, said the proposed $210 million in savings would give “meaningful and significant relief to all taxpayers in our state while being responsible with our tax dollars.” (AP)