It is often said that the legislative process is similar to sausage-making: Neither process is much fun to watch. Four years ago, in the process of working out the Michigan state government budget, auto insurers found themselves with an unintentional tax credit that is reportedly worth $80 million in the current fiscal year. Naturally, the legislature and Michigan Governor Rick Snyder are keen to fix this budgetary snafu. That is likely to happen very soon as both the Michigan House and Senate have sent the fix to the governor’s desk where it will be signed.
How did this windfall come about? Long story short, the prior budget deal transferred the Michigan assigned claims plan from the Secretary of State to the Michigan Automobile Insurance Placement Facility (MAIPF) in order to gain efficiencies and better claims handling. Apparently, no one realized that this switcheroo now entitled insurers to tax credits on the additional funds that were now being channeled through MAIPF. Oops.
The opposition to the legislative “fix” for this accidental tax credit has argued that the loss of the tax credit could cause auto insurance premiums in Michigan to increase by as much as $40 per vehicle. That may well be true, but it’s a difficult political argument to keep such a vast tax break in place when everyone openly acknowledges that it was unintentional in the first place. Michigan’s auto insurance premiums are the highest in the nation. Loss of the accidental tax credit is certainly not going to bring them down, but perhaps it will remove a distraction so that the legislature and governor can finally devote some serious attention to reforming the Michigan auto insurance system – like the fact that medical providers can charge different fees for the same services based solely on whether the patient was involved in an automobile accident or not. For example, an MRI paid for by Medicare, $484. Same MRI paid by a no-fault auto insurer $3279. Now that’s worthy of some legislative attention now that the politics of the easy-come-easy-go tax credit is resolved.