MIRS provides comprehensive news and analysis of state government delivered in written reports detailing the activities of the House, Senate, Judicial and Executive branches of Michigan state government.
Michigan News And Capitol Report, Week Ending Fri., Jan. 5, 2018
Khouri: Federal Tax Cut Will Block Michigan Taxpayers From Claiming Exemptions
"I think it is incumbent on the legislature to address it directly to make those changes in statute," Khouri said. And the sooner the better.
Various tax experts have offered opinions on the implications of the Tax Cut and Jobs Act adopted by Congress just before Christmas. Gov. Rick SNYDER has said he believes it eliminates personal exemptions and so would raise Michigan taxes. House Tax Policy Chair Jim TEDDER (R-Clarkston) wants the Michigan legislature to act to restore them quickly.
Anderson, president of the Anderson Economic Group, contended in a letter to Khouri that he has a different reading, that Congress didn't eliminate exemptions, just set them to zero through 2025. He asked Khouri to issue an "administrative statement" on the matter.
"You are right about the facts. Federal tax reform did not explicitly eliminate personal exemptions, instead setting the value of each exemption at zero," Khouri wrote to Anderson Wednesday. "But state law is clear, the number of exemptions for state taxation is determined by 'the number of exemptions or dependency exemptions allowable on the taxpayer's federal income tax return'. Since the federal 1040 will not require taxpayers to calculate personal exemptions that have zero value, Michigan residents would not be able to claim personal exemptions on their state tax returns under current state law."
Khouri also doesn't want it left an open question.
"More generally, and more important, we do not want to leave an ambiguous tax situation open for interpretation by individual state officials or the courts," he stated. "Addressing uncertainty for taxpayers is a key responsibility of the state Legislature. That is why I believe it is incumbent upon the Legislature to clarify the treatment of personal exemptions for state tax purposes in-light-of recent changes at the federal level."
Khouri told MIRS it's important for state lawmakers to act soon, since the federal changes are in effect as of Jan. 1. And Michigan taxpayers may want to adjust their withholdings, up or down, based on how the changes impact them.
"I agree it's an issue that should be addressed immediately," Khouri wrote to Anderson. "We can both agree that Congressional action to change the federal personal exemption should not lead to an unintended increase in Michigan's individual income taxes."
Technically, the fix should be simple, he said. The change needed is only a couple of sentences in the state tax code.
"What happened at the federal level was they eliminated the personal exemption, but they increased dramatically what is called the standard deduction to offset most of that impact on individuals for federal taxes," Khouri explained. "Our exemptions are tied to the federal code, but our deductions aren't. They are independent of the federal code, so that is why we are only getting one side of the change in federal tax law."
The Department of Treasury continues to review the federal tax reform, which Anderson called "long and confusing." But Khouri said he expects to have a more detailed analysis on the federal changes and their implications for Michigan's tax code ready for lawmakers by the Consensus Revenue Estimating Conference next week.
"It's a complicated change and the effect on the state is complicated," Khouri said. "We continue to review the provisions of the federal code, so we will have more next week."
House, Senate Leaders Name Legislative Priorities For 2018
Getting the skilled trades package, which passed through the House just before Christmas, through Senate and paying down long-term debt would round out his list.
Senate Majority Leader Arlan MEEKHOF (R-West Olive) is "focused on continuing the eighth year of a budget done ahead of schedule," according to spokesperson Amber McCANN. Meekhof is also looking at the impact of the new federal tax plan on Michigan taxpayers. He wants to make sure "taxpayers benefit" from any adjustment to Michigan tax code.
Finally, the Senate Leader "would like to reach consensus on the driver responsibility fee legislation."
The Senate and House have competing versions of driver responsibility fee (DRF) elimination bills. The Senate version frees drivers from unpaid DRFs of six or more years. It also allows those with fees issued more recently a chance to keep their driver's licenses if they pay their outstanding fees off.
The House version wipes away all DRFs from all drivers, giving them a clean slate as of Oct. 2018.
"Something that is near and dear to my heart, I want to see a resolution to this driver responsibility fee situation that we have right now," Leonard said. "We've got over 300,000 of our citizens who are currently driving without a driver's license. It is time we got that addressed."
But opponents of total elimination say that would cost the state budget too much.
"The time is over for excuses," Leonard responded. "Again, we've got 300,000 residents that need to get their driver's licenses back and I believe we have waited long enough. As you have seen, we had nearly $280 million in lapsed dollars from the last budget cycle. This is something we can afford. It is the right thing to do. We need to get these people their driver's licenses back."
Leonard told reporters at the end of session, just before the Christmas break, that he's also eager to take up reforms to mental health services.
"I would like to get some bills dropped," he said. "The task force was out for the past several months meeting with interest groups and having their town halls so I would like to see those put into bills."
Referred to as the Community, Access, Resources, Education and Safety (CARES) Task Force and headed up by Rep. Hank VAUPEL (R-Fowlerville) and Rep. Klint KESTO (R-Commerce Twp.), the group held hearings across the state. Vaupel has said there are good mental health services in the state, but that services are not consistent and differ in every county. He expects drafts to be submitted shortly.
Leonard's spokesperson, Gideon D'ASSANDRO, added passage of the five bills in the skilled trades package to the list of legislative priorities. HB 5141, HB 5142, HB 5143, HB 5144 and HB 5145 are intended to boost career tech courses in public schools for students not college bound. The most controversial piece in the package was HB 5141, by Rep. Bronna KAHLE (R-Adrian), that would allow licensed professionals to teach courses in their area of expertise without a teaching degree.
"When you look at what the Michigan unemployment rate is right now, we are essentially at full employment," Leonard said. "The problem right now is we don't have enough skilled individuals to take a lot of these skilled trade jobs."
Paying down debt for MPSERS, State Employee Retirement , the State Police and other long-term liabilities counts as another priority, D'Assandro said. Some $8.5 billion has paid down since 2011, he said. About $6.61 billion of that is additional payments the legislature has made to get ahead on the long-term debts.
McCann said another priority for Meekhof in the Senate is "monitoring the proposed laws that may come before the legislature in the form of citizens' initiatives."
So far, three initiative petitions have been submitted for the 2018 ballot regarding legalization of recreational marijuana, redistricting and repeal of the prevailing wage law.
These news reports are brought to you by MIRS
Learn more at mirsnews.com
Sessions Decision Could Open Door To Federal Pot Raids In MI
Fox said individual U.S. Attorneys will now enforce marijuana laws as "they see fit within their districts," meaning "They could send threatening letters or they could send in SWAT teams."
"Individual U.S. Attorneys could decide intelligently that it is a waste of resources to go after individuals and businesses that are in compliance with state law," Fox explained. "But this is definitely sending a very clear political signal to them that leadership in the Department of Justice (DOJ) and, in particular, Jeff Sessions want them to start going after these businesses. Given that the majority of Americans want marijuana to be legal and that these businesses are creating jobs and paying taxes and keeping a large portion of the marijuana market out of the hands of criminals, I think there is going to be tremendous political backlash."
Josh HOVEY, spokesperson for the Coalition to Regulate Marijuana Like Alcohol (CRMLA), said the feds can't crack down on local medical marijuana users or businesses because of a budget amendment, known as the Rohrabacher-Blumenauer Amendment, which prohibits DOJ from spending money to enforce federal prohibitions in states that have legalized, and regulated, medical marijuana.
True enough, according to Fox. But that amendment currently is set to expire on Jan. 19.
"Right now, there is actually a spending amendment that prevents the Department of Justice -- it's not a policy guideline, it is binding -- that prevents the Department of Justice from spending any resources to go after medical marijuana patients or providers in states where it is legal," Fox said. "However, those protections are set to expire on Jan. 19 unless Congress includes them again in the fiscal year 2018 spending budget or there is a continuing resolution that continues the current levels of spending for another couple weeks while we keep working on the issue."
Congressional leadership must reauthorize the amendment, according to the National Organization for the Reform of Marijuana Laws (NORML). The Senate Appropriations Committee has approved it but the House Rules Committee held it and other budget amendments back. House and Senate leadership will decide the issue when they meet to reconcile the appropriations bills.
Since 2013 DOJ has operated under guidance given in a document known as the Cole Memo, which directed U.S. Attorneys to not enforce federal marijuana laws in states where medical marijuana is legal as long as eight public safety criteria are met.
Sessions issued a new directive Thursday, instructing U.S. Attorneys to use their discretion on the matter, essentially rescinding the Cole Memo.
"My guess is they have more pressing issues than going after what is now a pretty tightly controlled medical marijuana industry in Michigan, and what we are proposing will also be very tightly controlled," Hovey said.
Hovey's CRMLA has submitted petitions to put the question of legalizing marijuana for adult recreational use on the ballot in 2018.
Meanwhile, the Michigan's Department of Licensing and Regulatory Affairs (LARA) has been working to revamp the state medical marijuana licensing program.
LARA Public Information Officer David HARMS issued statements in reaction to the Sessions announcement.
"As a state, Michigan has recognized and authorized the use of medical marihuana pursuant to the Michigan Medical Marihuana Act (MMMA) and has tasked LARA with administering the registration process for patients and caregivers. We will continue accepting and processing applications for registry identification cards. Any questions regarding enforcement of federal law should be directed to federal authorities," he said.
Regarding facilities, he said: "The Michigan Legislature has authorized the licensing of medical marihuana facilities and has required a rigorous statewide monitoring system to help keep Michigan's citizens safe. LARA . . . will continue to move forward in accepting and processing applications for state operating licenses."
Insurers Take Issue With Democratic Mailer Explaining Vote On Auto No-Fault
The mailer, sent out in December by Rep. David LAGRAND (D-Grand Rapids), and reportedly a number of other Democrats, includes a section headlined "Why I Voted No" and touting the Fair Affordable No-Fault Reform plan as the better alternative.
"Michigan drivers need real rate relief and this bill would not have provided it," LaGrand's mailer stated.
"To us it is kind of a veiled attempt to inoculate themselves in an election year on their no vote," said Peter KUHNMUENCH, executive director of the Insurance Institute of Michigan (IIM). "But the reality is, had that bill passed there would have been significant benefits to all their constituents whether they are Democrat or Republican."
HB 5013 would have ended Michigan's mandatory unlimited lifetime coverage for personal injury protection (PIP) and offered three levels of coverage. House members voted the plan down 45-63 with 41 Democrats in opposition. Twenty-two Republican also voted no.
"This plan pretended to offer a cheaper option, but only if drivers agreed to significant reductions in coverage, even for their children, who would have had capped lifetime benefits and no legal recourse under the plan," the Democratic mailer stated. "Even more troubling, the cheaper plans have no guaranteed long-term rate relief, only a five-year reduction of PIP rates, after which time insurance companies could once again charge outrageous fees for this capped coverage."
Kuhnmuench's main objection was that the mailer claimed there was no guaranteed rate reduction.
"If you read the statutory language, it mandates a rate reduction of up to 40 percent on a $250,000 policy. Is there an off ramp, if you will? Yes. You have to have one because if the mandatory reduction results in the insolvency of a company, that's not doing anybody any good. They wouldn't have the money to pay benefits."
House Democratic spokesperson Samantha HART confirmed LaGrand and "a few other members" sent out mailers regarding no-fault at year end. She noted the mailers were reviewed and approved by the House Business Office to ensure there was no "politicking" included."
"It's not surprising that an insurance industry lobbyist whose boss would have profited off House Bill 5013 doesn't like a mailer that informs Michiganders about the realities of why this legislation fell short, but the idea that a representative communicating with their constituents about legislation is in any way improper is absolutely ridiculous," Hart responded.
The mailer also points to the alternative reform plan as the better option.
"I also voted against HB 5013 not only because it would have been a failure, but because there's a better option, the Fair and Affordable No-Fault Reform plan, that has not been fully considered by the House and which would reduce costs for all drivers without sacrificing coverage for accident victims," the mailer stated.
That plan would reduce costs for seniors, crack down on fraud, increase transparency in rate setting and coordinate coverage with health insurance. The mailer promotes that plan as "prohibiting the use of discriminatory rating factors -- including ZIP codes, gender, education, marital status and credit score -- because we all know that these factors have nothing to do with a person's ability to drive safely."
Kuhnmuench argues that alternative package does nothing to reduce costs and in some cases might increase them.
"You can ban all those factors and it is not going to reduce costs by a penny," he said. "What the rating factors do is allow insurers to assess risk appropriately. In other words, if you are a riskier driver, you are going to pay more than the individual that never gets into an accident and drives three miles to work and back, and obeys the speed laws. So eliminating those factors actually forces cross-subsidization. You are forcing good risks to subsidize the premiums of bad risks."
Democrats further contend HB 5013 would have forced drivers to take the lowest level of coverage.
"For many hardworking men and women across the state, their financial situation would have dictated taking the lowest possible coverage offered in exchange for a rate reduction," the mailer stated. "If tragedy struck, they would have been bankrupted by insurance costs. Worse yet, whatever they were unable to cover would have been a tab picked up by Michigan taxpayers."
It was special interests that killed the bill, Kuhnmuench contended.
"It just comes down to client interests that are opposing this package. That's why it hasn't succeeded," he said. "And you can line up the Michigan Health and Hospital Association first in that line. The trial bar, the CPAN coalition, and the House Democratic caucus. Why did no-fault fail? That's why."
Kuhnmuench argues that insurance companies now, despite rates being high, aren't making money on their business because of the no-fault mandate for unlimited PIP.
"We haven't negated the need to reform Michigan no-fault by any stretch of the imagination. It is simply going to become a bigger and bigger problem. So we continue to support reforms that make sense, that actually get to the underlying problems and will continue to do so," he said.
MIRS Monday Podcast
Also, Rick Jones said he "absolutely will not" be retiring from professional life after he's term-limited out of office in 2018. What will the future hold for him? Jones shares a few possibilities. He also shares his thoughts on the race to replace him and a few state House candidates he'll be supporting this summer and fall.