Michigan: Repeal of accidental tax credit for insurers could increase premiums
This month, Michigan lawmakers approved a budget bill for fiscal year 2017. When Gov. Rick Snyder introduced his 2016 budget proposal in February, one of the key tax policy changes that he identified was the elimination of the Insurance Premium Tax Credit. In its analysis of the governor’s proposal, the Citizens Research Council of Michigan described the credit as an “unintended consequence” of a 2012 law change that made auto insurers eligible for a tax credit for assigned claims involving uninsured drivers. The assigned claims plan was designed to provide financial assistance to those injured in an uninsured motor vehicle accident in the state, but who have no coverage of their own. For example, the plan would assist a pedestrian without car insurance who is hit by an uninsured driver or a hit-and-run driver.
In early June, the general assembly passed a pair of bills, House Bill 5457 and House Bill 5458, to carry out the credit’s repeal. The most recent analysis estimates that with the repeal, the state will capture $23 million more revenue from insurance companies in tax year 2016, and about $80 million more annually beginning in tax year 2017.
Not surprisingly, the Michigan Insurance Coalition warned that the credit’s repeal “will only serve to drive up the premiums we all pay for auto insurance, exacerbating an already challenging situation.” Instead, the coalition called for the legislature to address the underlying costs of high premiums, which presumably would reduce the number of uninsured motorists on the road. What is more, the coalition argues, the repeal is really a tax hike that unfairly targets an industry that provides good, stable jobs, but already pays a disproportionately high amount of taxes.
Similarly, Stop the Car Insurance Tax Coalition, a group of insurance agents, auto insurance carriers, business and grassroots organizations, promised higher premiums. It cited a poll finding that 73 percent of Michiganders oppose the repeal, while only 18 percent support it. Quoting a study by the Anderson Economic Group, LLC, the coalition pointed out that the insurance industry supports $37.1 billion in spending, and $6.3 billion in wages, and provides over 114,000 jobs. Further, because the legislature failed to address out of control unlimited no fault medical coverage, Michigan’s car insurance rates are already among the highest in the nation. The coalition worries that adding another $40 per vehicle will put even more pressure on small business job providers.
On the other hand, according to Crain’s Detroit Business, some lawmakers do not take these threats of increased premiums seriously, on the grounds that “drivers never got a break when the industry qualified for the tax credit in the first place.” Even so, the bills easily won approval, 29-7 in the Senate and 80-28 in the House.