Tax Policy and the Race for the Governor’s Mansion: Michigan Edition

Voters in 36 states will be choosing governors this November. Over the next several months, the Tax Justice Digest will be highlighting 2014 gubernatorial races where taxes are proving to be a key issue. Today’s post is about the race for Governor in Michigan.

The gubernatorial race in Michigan pits incumbent Rick Snyder (R), a businessman who won election four years ago as a technocratic outsider, against challenger Mark Schauer (D), a former congressman from Battle Creek. Taxes are a contentious campaign issue – the governor and Republican legislature passed a tax package in 2011 that decreased business taxes and increased taxes on seniors and working families, and Schauer has vowed to repeal the increases. Since enacting his tax plan, Gov. Snyder has sought to move to the middle, alienating some of his more conservative supporters in the process.

The race is a dead-heat. A recent poll for NBC News found registered voters backing Snyder 46 percent to Schauer’s 44 percent, with 9 percent undecided. While the incumbent is still favored to win and will likely outspend his challenger, Gov. Snyder is in a tough spot; no poll shows him with the support of 50 or more percent of voters, and Schauer continues to gain on Snyder despite the governor’s improved job performance ratings.

Gov. Snyder’s 2011 tax-cut bill was the largest Michigan had seen in 17 years. The package eliminated the Michigan Business Tax, enacted in 2008, and replaced it with a 6 percent corporate income tax. The tax cut, estimated at $1.65 billion, benefited 100,000 Michigan businesses. To help pay for the cut, Snyder and Republican legislators increased taxes on pensioners (by eliminating the pension tax exemption for those born after 1952), middle-income families (by eliminating the Homestead Property Tax Credit for those making over $50,000 and the $600-per-child tax credit), and working families (by reducing Michigan’s Earned Income Tax Credit from 20 percent to 6 percent of the federal credit.) The net result left a $220 million hole in state revenues.

Gov. Snyder remains a traditional business-establishment Republican, but he angered state Republicans by embracing the ACA’s Medicaid expansion and Common Core, and has attempted to triangulate to shore up his reelection prospects. His proposed 2014 budget retroactively restored the Homestead Property Tax Credit for those in the $50,000 to $60,000 income range, increased education funding for K-12 and higher education, and increased state aid to local governments. Critics derided the budget as an election-year stunt that didn’t reverse the damage of his earlier tax cut, or offer relief to pensioners burdened with higher taxes.

Schauer, a former one-term congressman from Battle Creek, has forged a progressive campaign built on repealing Snyder’s 2011 tax package – nixing the tax increases on pensions, restoring the cuts to the Earned Income Tax Credit and Homestead Property Tax Credit, and bringing back the child tax credit. He also pledged to increase education and road funding and enact other measures designed to support women and working families, such as paid sick leave and increased unemployment benefits. However, he has offered few ways to pay for these proposals other than ending tax breaks for companies that outsource Michigan jobs and eliminating “wasteful spending.” He also does not want to increase the corporate income tax. The coming months will determine if he can convert his recent momentum into a lasting advantage, as no poll has shown him leading the governor.

One issue that has put Snyder and Schauer on unlikely sides of the usual partisan divide is transportation funding. Gov. Snyder has been a high-profile proponent of raising the gas tax and increasing automobile fees to fund roads and transit projects, though his proposals have not gained much traction. Schauer has flatly said he doesn’t support a hike in the gas tax, saying that he instead would insist on getting Michigan’s fair share of federal gas tax revenues and impose a higher fee on heavy commercial trucks.