Michigan has Plenty of Ideas for Tax Reform, but no Consensus

Michigan has Plenty of Ideas for Tax Reform, but no Consensus
 

So far this year, the Michigan Senate has approved $1.2 billion in tax cuts for business, homeowners and car buyers.

Making the cuts is especially easy when they benefit people getting hit with increases, such as homeowners whose bills go up as their property values slide, or employers who are paying more under the new Michigan Business Tax than they did under the old levy.

It's easier still when lawmakers don't bother to say how they will pay for the tax cuts, ignoring the fact that roughly 80 cents of every dollar Lansing collects is consumed by four essential services: K-12 schools, higher education, public safety and health care for the poor, elderly and mentally ill.

The backdrop for the tax-cutting is a Michigan economy in shambles and the assertion that the state has to make dramatic repairs.

That effort apparently began Thursday when the civic group Detroit Renaissance huddled with legislative leaders to discuss improvements in Michigan's business climate. A goal, said House Speaker Andy Dillon, is to agree on serious change in these "serious times."

The lack of consensus, he said, "doesn't instill confidence as to where we're going as a state."

Actually, there is consensus on the Senate's $700 million cut in the business tax. Gov. Jennifer Granholm won't sign it into law, even on the remote chance House Democrats pass it.

After getting the old Single Business Tax scrapped in 2006, business groups are once again clamoring for reform.

The new tax generates as much money as the old one, and two-thirds of taxpayers are paying less or about the same. But firms who are paying more aren't happy.

In general, manufacturers are paying less and service businesses are paying more -- and lawmakers who now complain service companies are fleeing the state knew that difference when they voted for the new tax.

Lawmakers also know that the Senate's cut does not come close to responding to businesses whose taxes have doubled. That would take a complete rewrite, which would in turn raise taxes for someone else.

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• Check out MSU professor's tax ideas

Want some serious change? Michigan State University economist Charles Ballard has it: Eliminate the business tax.

Dillon declines to confirm it, but he apparently likes the idea.

Unlike any other state, there would be no business tax on profits or receipts, period. Ballard would replace the $2.5 billion in lost revenue with a graduated income tax -- like most other states -- topping out at 6.5 percent. The current flat rate is 4.35 percent.

Any change would have to be put before voters, by petition or by lawmakers, as a constitutional amendment. But putting it on the ballot requires business support, and so far that's lacking.

The Michigan Chamber of Commerce hooted at Granholm's offer last week to trade a graduated income tax for the Senate's cut.

There is another route, Ballard says: Raise the current flat rate to 5.6 percent. Lawmakers could pass that on a majority vote, but Granholm would have to agree.

None of this would help angry homeowners or lessen the tax bite on lower-income wage earners. Toss in those two things and you're talking a 6-percent income tax rate.

If business really wants transformation, it had better be prepared to propose, defend and rally public support behind it. Because that's what it will take.


Posted on Friday, March 20, 2009 (Archive on Monday, January 01, 0001)
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