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Economist says US tax law won't cause state taxes to rise

By David Eggert/Associated Press • Dec 30, 2017 at 5:00 PM

LANSING — An economist urged the Michigan Department of Treasury on Friday to quickly adopt his interpretation that the new U.S. tax law will not lead to an increase in state income taxes.

Patrick Anderson, a former deputy budget director under Republican Gov. John Engler, said there is a significant amount of confusion over whether the elimination of the $4,050 federal personal exemption also means an end to Michigan's $4,000 exemption. But he said he believes state taxpayers will not lose their exemptions starting on Monday.

In a letter to Michigan Treasurer Nick Khouri, Anderson said he reads the U.S. tax law to not "eliminate" the federal exemption but rather to set the "exemption amount" to zero from 2018 through 2025 — a different interpretation than one offered last week by Gov. Rick Snyder.

Anderson noted that the federal law says reducing the exemption to zero shall not be taken into account for other purposes. Michigan's exemptions "remain in place because no change in state law has taken place, and because federal law continues to recognize and establish exemptions," he wrote.

He acknowledged there was ambiguity in the state and federal tax laws, and recommended that the Treasury Department state its interpretation "as soon as possible." He said his interpretation is "consistent with the spirit of the federal law, the principles of federalism and the most reasonable way to read a very long and confusing federal tax law."

State offices were closed Friday ahead of the New Year's Eve holiday, and Treasury officials could not be reached for comment.

Snyder, a Republican, told The Associated Press last week that the federal law will cause Michigan residents' state income taxes to go up if no action is taken, but he committed to ensuring that taxpayers ultimately do not have to pay more. Snyder said while the law may have other implications for the state tax code, the elimination of the personal exemption is "the biggest element by far."

A single person could see a $170 state income tax hike, according to AP calculations. A married couple with two children could owe $680 more. The total value of Michigan's personal exemption for the last fiscal year was estimated to be $1.36 billion, according to a Treasury report .

The Snyder administration plans to propose recommendations related to the exemption issue at the next revenue-estimating meeting on Jan. 11, when Khouri and legislative economists will agree to budget figures.

Anderson, who owns a consulting business based in East Lansing, said he sent the letter — copied to Snyder and Attorney General Bill Schuette — to "pressure the state to take some action rather than allowing citizens to wonder."

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