Michigan House OKs Repeal of Inadvertent Auto Insurance Tax Credit

By DAVID EGGERT | June 7, 2016

The Legislature is close to repealing an annual tax break worth tens of millions of dollars that was inadvertently given to auto insurers four years ago, a move agreed to as part of a state budget deal.

The Republican-led House late Thursday gave initial approval to two bills to ensure the industry is no longer eligible for the tax credit, effective this tax year.

“This is the biggest and worst example of corporate welfare I have ever seen,” said House Appropriations Committee Chairman Al Pscholka, R-Stevensville. The companies got the tax credit, “and the citizens of Michigan got diddly in return,” he said.

Industry leaders have conceded that the credit was awarded by mistake, but they warn premiums will go up.

“This legislation results in a $40 per car increase in auto insurance premiums, which are already some of the highest prices in the nation, with no real effort to reform a system with skyrocketing costs,” said Mark Fisk, spokesman for the Michigan Insurance Coalition.

Michigan has what is called an assigned claims plan to cover medical care for people injured in accidents who do not have auto insurance. It initially largely covered pedestrians and bicyclists. But the benefits increasingly also help passengers injured while riding in uninsured vehicles.

The secretary of state managed the program from the 1970s until 2012, when a law transferred the plan to the Michigan Automobile Insurance Placement Facility, which sells insurance to people unable to buy it from insurance companies. The move was intended to gain efficiencies and get a better handle on claims – the cost of which are borne by insurers and passed along to motorists.

But the switch meant insurers, who receive a tax credit against payments to the group, were credited for a quarter of $239 million in assigned claims paid out in 2015, about $60 million. The break is now estimated to be worth $80 million a year, according to the House Fiscal Agency.

Republican Gov. Rick Snyder proposed ending the credit in his budget proposal for the fiscal year that will start in October, and legislative leaders agreed. The legislation, which was approved 78-30 and 79-29, is expected to be taken up by the GOP-controlled Senate before lawmakers begin their summer break in two weeks.

Rep. Jim Townsend, D-Royal Oak, said he was hopeful that Republicans “are listening to our message of tax fairness” and may address other business tax breaks.

Was this article valuable?

Here are more articles you may enjoy.