The Granholm Tax Plan:

If We Want to Take Michigan From Worst to First,

The Best Business Tax is None

Editor's Note: 

        As Governor Jennifer Granholm proposes yet another new two cents per dollar regressive 'service tax' on businesses that in recent years have formed the largest growth segment in Michigan's economy, it is apparent that while the wealthy have Republicans to look after their interests, and the poor have Democrats protecting them, the middle class is openly threatened, and at risk of becoming an endangered species.
 

As our guest editorial writer points out below, evidence strongly points to the fact that the best way to handle the so-called 'deficit' created by elimination of the Single Business Tax and cure Michigan's budget woes is to do nothing at all.


By Kenneth M. Braun

  Michigan's Single Business Tax (SBT) is America's worst state corporate tax, according to the Tax Foundation.  Fortunately, this job killer will expire on Dec. 31, 2007. Many politicians believe that we must craft a replacement tax because they claim the government cannot do without the $1.9 billion in SBT revenue.
   

But if the SBT dies and politicians fail to approve a new tax, we will join three other states that the Tax Foundation says do not have any general corporate tax.
Judging from what has been happening to those and other states at the top of the Tax Foundation's corporate tax ranking, our politicians should consider 'failure' an option.
 

Michigan's historical high-water mark for jobs was April 2000. From then until October 2006, the number of jobs in the United States (excluding Michigan) increased 6.8 percent.
Michigan lost more than 207,000 jobs in those six years - a decline of 4.2 percent, while the five states ranked by the Tax Foundation as having the lowest general corporate taxes have increased their job total by 14.1 percent. Thee three states that have no general corporate tax at all combined for a 17.6 percent job growth, according to the U.S. Labor Department.
 

What if Michigan had eliminated the SBT six years ago, and had added jobs at a pace comparable to the other 49 states? In this hypothetical, Michigan would now have an additional 545,000 jobs. Assuming that state income and sales tax collection per job had remained constant, just these two taxes would today bring in an additional $1.6 billion in state revenue per year - nearly all of what is now brought in by the SBT.
  

Even more striking, if our job growth had paced the three states that have no general corporate tax at all, then the additional income and sales taxes would be more than $3.2 billion - making up all of the 'lost' SBT revenue and tacking on an extra $1.3 billion.
 

We cannot know for certain what would have happened to Michigan if its tax structure had been different.
 

But remember that the calculation above considers only the additional income and sales taxes from those extra jobs. It does not account for a potential increase in the billions of dollars now collected for property and real estate taxes, 'sin' taxes, motor fuel taxes, insurance taxes, licenses, fees and other sources of revenue.
Unless those half million to 1 million extra workers were all homeless and didn't drink, smoke, gamble, drive or buy insurance, it is quite possible that the increased revenue estimates above are conservative.
    

Admittedly, Michigan's economy did well in the late 1990s, even with the SBT in place. But given the magnitude and persistence of Michigan's current problems, this is a tax that we can do without.
   

For every dollar that employers must pay in corporate taxes to the state, they have one dollar less to disburse as wages to workers or as investment in growth. It is perhaps no surprise that the state with the worst corporate tax is losing the most jobs, while the rest of the nation is rapidly creating them.
  

Returning Michigan job growth to the national average or better will not happen overnight, regardless of what the tax changes may be. A trimming of expenses will be necessary and here it is important to bear in mind that the SBT only accounts for about five percent of the total state budget.

       

Michigan businesses have cut back their budgets during this prolonged one-state recession, and state government has cost cutting that can still be done.
 

An audit of public school health insurance purchasing revealed reforms that could save $200 to $400 million each year. Another $40 million could be saved annually if Michigan joined other states that impose a lifetime limit of four years for welfare benefits (as opposed to recent legislation that appears to impose this limit, but grants a multitude of exceptions). These and other common-sense reforms should be used to 'pay' for the current budget deficit and any SBT revenue that is 'lost' in the short run.
 

Nearly all of the plans that have been proposed to replace the SBT with other taxes come with assurances they will provide tax relief for some Michigan Businesses (though often at the expense of tax hikes for others).
      

There is thus a bipartisan understanding that tax cuts create jobs. The politicians need to take the logical next step in their thinking and realize that all of Michigan's job providers need tax relief.
 

Replacing the SBT with noting is a reasonable option. For Michigan to succeed, policymakers should dare to 'fail'.
                                             

Kenneith 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.


Public Officials Using Tax Dollars to Lobby for Higher Taxes

For the past year, Michigan municipalities, public universities and public hospitals have been spending tax dollars on a coordinated public relations campaign for higher state taxes, writes Diane S. Katz, Director of Science, Environment & Technology at The Mackinac Center for Public Policy.
   

"That these groups are using tax dollars to lobby for higher taxes is an insult to Michigan taxpayers and contrary to the best interests of the state," she notes.
     

"The groups' message is that in the midst of Michigan's economic slowdown, workers, families and businesses should sacrifice in order to make budget decisions easier for government officials."
       

The campaign for higher taxes, ironically dubbed the "Michigan Fiscal Responsibility Project," is being run by a Lansing public relations firm hired by the Michigan Municipal League, the Presidents Council, State Universities of Michigan and the Michigan Health & Hospital Association. A spokesman for the group would not divulge the cost of the open-ended effort, but said it was launched a year ago.
      

The Michigan Municipal League is funded by dues from 515 of Michigan's 533 cities and villages whose primary source of income is tax dollars, of course. The President's Council is funded by dues from Michigan's 15 public universities - all of which rely on tax dollars to operate. The hospital association represents a variety of medical care organizations, both public and private, which receive considerable public funding.
      

True, it is routine for groups like the League, Presidents Council and hospital association to lobby legislators for specific appropriations related to their budgets. In this instance, however, they are pressing lawmakers for higher taxes, which constitutes political activism of a much greater magnitude.
      

In dispatches to the media and in Web site postings, the groups advocate new "investment" in government and bemoan the fact that the average Michigan family pays only 7.9 percent to of its income to the state.
      

"If we were spending 9.49 percent of state personal income (the Headlee limit) on state spending � we would have $4.6 billion annually more in state spending," the group advises in a recent e-mail to reporters.
     

Contrary to the most basic economic principles, the high-tax enthusiasts actually claim that Michigan has lost jobs and business investment because taxes have been too low. "More cuts will only mean we'll fall farther behind states that are investing in the essential services that all citizens - and all prosperous communities - need," claimed Arnold Weinfeld, director of public policy and federal affairs for the Michigan Municipal League.

       

Beyond growing the size of local government, the League may have a secondary interest in higher taxes: Its membership dues are based on the amount of revenue sharing collected by member municipalities and townships. The more dollars Lansing collects and remits to local government, the larger the League's coffers will grow.
   

It's also worth noting that the League is fresh from lobbying against ending the local cable television monopolies that have enriched municipal budgets for decades at the expense of consumers.
        It's no mystery why municipalities, universities and hospitals want to maintain high taxes. Absent ever-greater tax revenue, they would be forced to rein in spending. That's the deceit of tax-and-spenders. Instead, they are misleading taxpayers by claiming that lower taxes will decimate police and fire departments and undermine public safety. What they fail to acknowledge is that state government wastes enormous sums of money on all sorts of projects and schemes that are wholly unrelated to its core functions. Simply put, Michigan has a budget shortfall because Lansing spends too much, not because it collects too little.
 

That these advocates for higher taxes are using tax dollars to indulge their spending is an insult to Michigan taxpayers and contrary to the best interests of the state.