Republican Official Says GOP Lawmakers Focus on Wrong Tax Cuts

A retired automotive engineer living in northern Michigan finds it ironic that Michigan is the “automobile capital of the world,” yet the cost of operating a vehicle in the Great Lakes State is the highest in the entire country.

Furthermore, Charles E. “Chuck” Leady of Cheboygan argues that it makes little sense for the Michigan Legislature to pursue a miniscule phase-out of the state income tax when reductions or elimination of several other levies that are far more onerous for low and middle income citizens, including most seniors, go unaddressed.

Leady, who is also treasurer of the Cheboygan Co. Republican Party, claims that these non-income taxes are particularly harmful to the majority of Michigan citizens: 1) The Catastrophic Claims (MCCA) mandate, which is part of the state’s exorbitant No Fault Auto Insurance system widely criticized but which the Legislature has historically been unable to fix; 2) Ridiculously high vehicle registration fees; and 3) The so-called “pension tax,” which realistically was a partial removal in 2011 of exemptions long existing in Michigan law on pension income.

Leady points out that a single person with an adjusted gross income of $40,000 annually pays a 4.25% income tax on $36,000 (due to the $4,000 personal exemption) taxable income, which would be $1,530. If that tax rate was reduced to 4.15%, the wage earner would pay only $36 less. That’s a $3 per month saving, which is not substantial.

On the other hand, let’s look at the other three taxes Leady finds objectionable:

1. Catastrophic Claims (MCCA): Leady’s personal situation is unusual, but it makes his point just the same. He still owns the first two vehicles be bought when he started work as an engineer, one for his parents and one for him (1976 and ’78). He also has a 2014 pick-up truck, a 2004 utility vehicle and a 2000 mid-size car. He says they’re not valuable, just old. Leady likes to drive the two ’70s cars a few times each summer, possibly to classic car events in Cheboygan, Mackinac City, St. Ignace and the Woodward Dream Cruise. He drives the pick-up only when he needs to haul something. Normally he drives the fuel-efficient mid-size car. Yes, there is a reduction in the Catastrophic Claims premium for vehicles officially registered as “Historic,” but only a small percentage of vehicles participate in car events; most are just classic “hobby” cars. The problem for Leady is that he is required by Michigan law to pay a Catastrophic Claims premium on each vehicle, even though only one will be on the road at a time, for a very limited period annually. That means the current mandated cost is $170 per car. However, Leady’s insurance company charges him $182.44 per year for each vehicle. For all five vehicles that is a total extra cost of $912 per year He can’t afford that cost, so the ’76 an ’78 are being stored. And the $547.32 he pays for the other three vehicles is still too much extra on top of regular vehicle insurance, which is already too high mostly due to the medical coverage portion. Worse, even if someone pays multiple redundant Catastrophic Claims premiums and is catastrophically injured, but not in a vehicle, then the person is just plan “out of luck.” Leady asks whether a person who becomes paraplegic from a sport, boating or snowmobile injury is not just as bad off as someone suffering the exact same injury from an automobile accident. Leady says the MCCA assessment should be repealed, at least for seniors already covered by Medicare. However, if Michiganders want this coverage for all people who have suffered catastrophic injuries, his “fallback” idea is that the the laws should be changed to a different system to accomplish this goal. Leady proposes that “catastrophic claims” should be divorced from auto insurance altogether. Instead, the Legislature should install a voluntary program to insure against ALL catastrophic injuries. If such a program is made mandatory, then it should be funded through a fixed (not percentage-based) surcharge on PEOPLE (not vehicles), possibly through the individual income tax, driver’s licenses, or another tax or fee already in place. This, he contends, would be far fairer and more efficient than assessing auto insurance premiums on a per vehicle basis. Leady argues that the approximately $18 billion MCCA Fund could be folded into this new system covering all catastrophic injuries. If the MCCA is not replaced, or Leady’s “fallback” proposal is not adopted, the law should at least be changed so that, in any given household, Catastrophic Claims premiums will not be assessed to any more vehicles than there are licensed drivers. Such a new law should encourage, not discourage, Michiganders who want to own multiple vehicles, for any reason.
2. The recent substantial increases in vehicle registration fees is in reality a tax which is especially harmful to low-and-medium income people, including most seniors.  Priority should be given by the Legislature to lowering vehicle registration fees to even less than before the recent hikes, since they were already too high before 2015.
3. Pension income. State taxes on pension income in Michigan were traditionally “zero,” before 2011. However, that was the year when exemptions from pension levies for many Michigan citizens were wiped out by the Legislature at the prodding of Gov. Rick Snyder in one of the most unpopular moves by state lawmakers in the past decade. The new 2011 public act also vitiated a promise made to state taxpayers years ago. Leady also reminds us that many employees made additional voluntary (Part B) payments to their pension funds through payroll deductions. This could be compared with a person starting work 30-40 years ago who regularly purchased tax-free bonds (which had a lower rate of return) for his or her retirement, then being surprised years later when, with their retirement on the horizon, they found their tax-free bonds had suddenly become taxable. Most certainly, says Leady, this amounts to changing the rules at the end of the game. The resulting levies are a far more substantial amount for many taxpayers than a reduction in the state income tax. Also, due to the prevalence of corporate bankruptcies, many pensions have been folded into other types of accounts such as 401Ks or IRAs as lump sum payments. Unfortunately, payments from these funds no longer qualify for any pension payment tax reduction, even though these alternative pension payments came from the same original source. This, too, is a very substantial amount.

*************************************