The first bill introduced in the Michigan House this year would repeal the much-reviled Michigan Business Tax 22 percent “surcharge,” and the first Senate bill would repeal the MBT altogether. Gov. Rick Snyder has proposed replacing the tax with a 6 percent corporate income tax, a change that would mean a big net tax cut for job providers.
That would great, but eliminating the tax and replacing it with nothing — offsetting the foregone revenue with spending cuts only — would be even better. Specifically, this could result in as many as 57,000 net new jobs in the first full year of the repeal, and 120,900 jobs by 2016.
The job estimates come from a Michigan-specific “Computable General Equilibrium” economic model the Mackinac Center commissioned from the Beacon Hill Institute of Massachusetts to measure the impact of tax policy changes on this state’s economy. Called the “State Tax Analysis Modeling Program,” the model estimates that, other things being equal, repealing just the MBT surcharge would generate around 8,300 jobs the first year, and 27,900 jobs through 2016.
The MBT and surcharge take in almost $2.2 billion annually. In addition, absent any other policy changes, the state also faces a $1.8 billion gap next year between planned spending and expected revenue. Add them up, and balancing the budget while wiping out the MBT would require some $4 billion in spending cuts and reforms. That’s a lot, but it isn’t impossible.
Up to $5.7 billion could be saved annually by adjusting the benefits paid to all state, local, school and university government employees so they are equivalent to workers in the private sector.
In addition to rationalizing government employee fringe benefit levels, the Mackinac Center has offered hundreds of other suggestions for how to save money by reducing the size and scope of state government. Our largest study on the issue has suggestions for saving $2 billion without cutting school spending while barely touching Medicaid health care subsidies for the poor.
The projections of economic modeling programs like the STAMP are not holy writ and are only as valid as their underlying assumptions. Still, they can provide a basic guide, and in this case the projection is supported by common sense: sweeping away a complex and burdensome business tax would be positive for private sector employment and investment in this state.