The Michigan Business Tax provides a lower tax rate for small businesses with annual gross receipts of less than $20 million and business income of less $1.3 million. Eligibility also requires a firm to cap earnings distributions to an owner in any given year at $180,000.
Last week the Senate passed Senate Bill 69, which among other things would raise that compensation cap to $210,000.
This triggered a misguided class warfare debate that showed how little members on both sides of the aisle really understand small business realities. Specifically, the annual income a small business owner derives from his or her enterprise was characterized as being equivalent to assembly line wages — a fixed amount they collect just for showing up.
Anyone who has ever owned or been involved in a small business would be appalled by this notion. The reality is that most small business owners exist on an income roller-coaster. Several years may go by with losses or minimal earnings, followed by one sunshiny year during which they better make hay.
Oh, but the "defenders of the little guy" can't have that! Sen. Mickey Switalski, D-Roseville, said, "This bill would have us believe that people are hurting out there, and they can't make it on $180,000." Sen. Gilda Jacobs, D-Huntington Woods, echoed Switalski: "I still think $180,000 compensation is something that probably all of us could live on."
What these business experts ignore is that a firm may well have been scraping by with just $10,000 or $20,000 in earnings for a few years, or losses — and the owners also know that one fat year is no guarantee against several lean ones in the future.
What was so frustrating was that those on the other side appeared to be equally clueless about the "ridin' high in April, shot down in May" realities of running a small business. They responded with accusations of "class warfare!" and one senator threw out a red herring, noting the lack of complaints from the other side about the compensation of Hollywood producers benefitting from state film subsidies.
That same senator voted for the economically absurd film subsidies.
Read the various legislators' floor statements from this sad "debate" on the Michiganvotes Forum (and post your own comments, too, while you're there).
Jack McHugh is senior legislative analyst at 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.
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