GOP outraged as Whitmer rejects gas tax holiday, Michigan income tax cut

LANSING — Democratic Gov. Gretchen Whitmer on Friday vetoed Republican legislation to slash income taxes and promised to do the same for a bill that would suspend Michigan’s gas tax, spurring partisan furor even as she urged negotiations on ways to provide families “immediate financial relief.”

Whtimer announced the vetoes hours after backing an alternative plan to pause the state’s 6 percent tax on motor fuels. And she asked the Legislature to advance her earlier proposals to exempt more senior income from taxation and expand the Earned Income Tax Credit for low- and middle-income workers.

Republicans blasted her veto letter as a "war on families" and a disappointment to consumers and small businesses alike. 

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“The governor talks a good game about tax cuts when she speaks to the public, but behind the scenes she’s doing everything she can to keep money out of the pockets of Michigan families and kill any chance they have of seeing relief," House Speaker Jason Wentworth, R-Farwell, said in a statement. 

“People are struggling to make ends meet and pay their bills. We need real leaders who say what they mean and do what they say, not politicians who wait for 5 p.m. on a Friday to quietly go back on their campaign promises."

Whitmer’s veto is the latest in an election-year standoff over how to spend nearly $5 billion in remaining federal stimulus funds, cut taxes and reduce record fuel prices that spiked across the country amid Russia’s invasion of Ukraine. 

In a statement earlier Friday, Whitmer announced support for a “short-term pause” in the sales tax on motor fuels. It’s not immediately clear how long Whitmer thinks that pause should last. The governor’s office did not immediately respond to follow-up questions from Bridge Michigan. 

“A short-term pause (in the sales tax on fuel) is a fiscally-responsible action we can take that will provide drivers relief at the pump right now – not next year – while also protecting funding for road repairs and saving tens of thousands of good-paying construction jobs,” Whitmer said.

“While I am open to negotiating on alternative proposals, I will not support legislation that jeopardizes road repairs, construction jobs, or funding for local schools.”

The Michigan Senate this week gave final approval to a bill that would suspend the state’s 27.2-cents-per-gallon gas tax for six months, but the Republican majority did not have enough votes to give the bill “immediate effect,” meaning it would not cut prices until 2023. 

That followed Republican approval of a separate $2.5 billion plan that would cut individual income taxes, expand senior relief and create a child tax cut. 

Among other things, the GOP plan would reduce Michigan’s individual income tax rate from 4.25 percent to 3.9 percent. That would save a family of four with an income of $63,829 — the median for Michigan in 2020 — $153 next year.

Because federal law prohibits states from spending stimulus funds to directly pay for tax cuts, the GOP plan could have forced more than $1.8 billion in annual cuts in other parts of the state budget, according to nonpartisan fiscal agencies. 

Whitmer rejected both bills Friday — vetoing the income tax legislation and promising to do the same when the gas tax bill reaches her desk — but called for additional talks.

“I know we can collaborate to deliver immediate relief that makes a difference right now. We must come together to negotiate a balanced budget, as we have done three years in a row, and include proposals to lower costs and put more money in people’s pockets,” she told lawmakers in her veto letter. 

Fuel tax standoff

Senate Majority Leader Mike Shirkey, R-Clarklake, said Friday he continues to support the proposed gas tax holiday and accused Whitmer of being “weeks late” to the debate “and millions of dollars short” when it comes to fuel prices.

Whitmer, a first-term Democrat seeking re-election, has urged Congress to suspend federal gas taxes. But at the state level, she had not backed any specific plan to reduce fuel prices until Friday. 

Unlike the Republican plan to suspend the state’s gas tax, a sales tax suspension would not jeopardize transportation funding or slow Whitmer’s ongoing push to “fix the damn roads,” a central promise of her 2018 campaign. 

But without replacement funding, suspending the sales tax on fuel would impact the School Aid Fund that supports traditional public and charter schools across Michigan. Nearly $3 out of every 4 in sales tax goes to schools.

At the beginning of fiscal year 2022, with gas averaging $2.84 per gallon, the state had expected to receive $621 million in sales tax collections from fuel, an estimate that has likely risen significantly as gas prices have soared.

Senate Minority Leader Jim Ananich, D-Flint, said last week he is confident lawmakers could identify replacement money for schools given the state’s “windfall” of federal stimulus and surplus funding. 

Michigan is one of seven states where motor fuels are subject to some or all of the statewide general sales tax, according to the National Conference of State Legislatures. 

Policymakers here have long debated whether to exempt motor fuel purchases from the state’s sales tax, which increases costs at the pump but — unlike the traditional gasoline excise tax — does nothing to support roads, bridges or other forms of transportation. 

Ananich has renewed the debate, proposing to suspend the sales tax on fuel through the end of the year. But powerful Republicans like Shirkey want to take his proposal a step further by permanently ending the sales tax on fuel. 

“If the governor really wants to help Michiganders, she’ll tell Senate Democrats to support immediately suspending the gas tax,” Shirkey said in a Friday statement. “Then we can talk about doing away with the sales tax on gas once and for all.”

House Republicans continue to support their initial plan to suspend the state gas tax, said spokesperson Gideon D’Assandro.

“A temporary sales tax pause would provide smaller savings right now than the fuel tax pause that passed last week, and the savings would shrink even more over time as gas prices come back down from their highs,” D’Assandro told Bridge in an email. 

“In a head to head comparison, the governor's suggestion saves families less money at the pump at a time when they need the most relief possible.” 

He’s not wrong: With gas prices currently averaging around $4.17 in Michigan, a sales tax suspension could save motorists less than 25 cents per gallon, and less if prices fall. The GOP plan, meanwhile, would save motorists 27.2-cents per gallon regardless of the underlying fuel price.

But Whitmer said that pausing the sales tax on fuel would be a wise way to “start” providing residents with tax relief while she and lawmakers negotiate a larger plan.

“These are tough times, and Michiganders need relief,” the governor said in a statement. “I’m ready to work across the aisle with the legislature to negotiate a bipartisan solution that cuts taxes and lowers costs for drivers, seniors, and working families.”