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 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.