Last summer, the Michigan Legislature approved a voter-initiated law repealing the state’s much-reviled Single Business Tax. The preamble of that law reads as follows:
The MBT resembles the SBT hanging upside down — a vampire awakened from its slumber and still preying upon the economy.
"The purpose of this initiated law is to:
(a) Repeal the single business tax on business activity in this state after December 31, 2007; and
(b) Encourage the legislature to adopt a tax that is less burdensome and less costly to employers, more equitable, and more conducive to job creation and investment."
A year later, Gov. Jennifer Granholm and state lawmakers created
a replacement tax for the SBT named the "Michigan Business Tax." The MBT sends a
message that Michigan is "open for business," said the governor. Senate Majority
Leader Mike Bishop predicted that it "will help set Michigan on the path to
economic recovery."
But the MBT does not live up to these platitudes and fails the
explicit objectives set forth in the law that orders replacement of the SBT.
Distinguishing the two taxes, the governor stated that the MBT "flips the SBT on
its head." This is an apt metaphor, because the MBT resembles the SBT hanging
upside down — a vampire awakened from its slumber and still preying upon the
economy.
The old SBT would have taken $1.9 billion from Michigan
employers. The MBT is projected to take in all of that
and potentially more.
Bearing in mind that lawmakers were encouraged
to create a new tax that is "less
costly to employers," a replacement that is equally costly or worse is an abject
failure.
The Michigan Chamber of Commerce initially expressed cautious
optimism when the MBT was introduced, but conceded that it was complicated.
However, after reading the details, the Chamber’s tax experts identified "30
significant problems." In a statement of opposition to the new law, the Chamber
implied that the MBT is a tax increase, and that it contains hidden tax hikes,
double taxation of income, needless invitations to lawsuits and other potential
problems as yet unidentified. Thus, a tax that was supposed to be "less
burdensome" for employers appears to be filled with flaws and is so complex that
one of the state’s largest and most knowledgeable business advocates is still
trying to untangle it.
Finally, the voter-initiative to repeal the SBT cajoled
lawmakers to enact a replacement that would be "more equitable, and more
conducive to job creation and investment." But while the MBT reportedly slashes
auto industry taxes from $57.4 million to $1.4 million, this is offset by tax
increases
on many non-manufacturing businesses. Are Michigan politicians so economically
schizophrenic that they think tax cuts will provide "the path to economic
recovery" for carmakers while tax hikes will not comparably
harm
other businesses? Rather than an
investment-friendly and equitable tax, this is a disruptive and complicated
government game that pits the interests of some industries against others.
This failure was neither inevitable nor necessary. The Mackinac
Center has repeatedly called for abolishing the SBT and replacing it with
nothing.
This simple, pro-growth idea is the law of the land in three states that have no
general business tax, according to the Tax Foundation of Washington, D.C. As a
roadmap to this goal, the Center has proposed several billion dollars in
spending cuts, including more reasonable government employee benefits and
privatization of numerous government functions. Many of these proposals have
been tried and are proven money-savers in other states or at other levels of
government in Michigan.
A modest step toward this goal was attempted briefly by the
Michigan Senate on May 3, 2007, when it narrowly approved a plan that would have
cut business taxes nearly $400 million compared to the SBT. While this too was a
somewhat complicated proposal, it did meet the criteria of creating a tax that
was less costly and friendlier to job creation and investment. Just a few of the
Mackinac Center’s recommended budget cuts could have been used to "pay" for this
tax relief.
The governor opposed the Senate proposal and the Michigan House
refused to even vote on it, effectively ending all future attempts to craft a
pro-growth replacement for the SBT. This prepared the way for the MBT, which
does anything but send a message that Michigan is "open for business." It is a
slap in the face to job providers who deserved better and explicitly begged
lawmakers to cut the cost of doing business in Michigan.
#####
Kenneth M. Braun is a
policy analyst specializing in fiscal and budgetary issues for the Mackinac
Center for Public Policy, a research and educational institute headquartered in
Midland, Mich. Permission to reprint in whole
or in part is hereby granted, provided that the author and the Center are
properly cited.
Post a public comment on this.
View all comments on Mackinac Center articles.
