Michigan Legislature Takes Up Budget Overhaul That Eliminates the Michigan Business Tax & Shifts The Burden to Middle Class & Seniors

Posted In: Politics, State,   From Issue 721   By: Mike Thompson & Robert E. Martin

24th February, 2011     0

In Lansing, state Rep. Charles Brunner of Bay City is a freshman Democrat, but he has plenty of experience. He served six years on the City Commission, the final three as mayor, and says he has observed how state cuts in revenue sharing place more pressure on local taxes.

“The cuts (in revenue sharing) are mainly going to affect public safety, because that’s about the only thing left,” Brunner said, after new Republican Gov. Rick Snyder unveiled a major two-year plan to put the state budget in balance while delivering lower taxes for the business community.

Brunner says he feels “it’s premature to pass judgment at this point” because Snyder and his staff released more than 500 pages of material, but he’s especially concerned about reduced funds for education along with municipal revenue sharing.

“The frustrating aspect for a lot of tax payers is that we’re still paying these rates yet seeing all these cutbacks,” he says. “In seeing all these tax breaks given to businesses, there’s a lot to digest and a lot to analyze.”

Snyder would replace the Michigan Business Tax, considered onerous both by Republicans and by many Democrats, with a flat 6 percent corporate rate. He says small business would receive benefits.

Still, it’s not all peaches and cream on the corporate side. Snyder says he would shut down the practice of granting special corporate incentives.

So what would that means to deals such as the package offered to lure Hemlock Semiconductor’s expansion in Shields?

“What the governor is proposing is that if you want to have special treatment you come to the Appropriations Commission, and if we see the merit then we will cut a check,” says Senator Roger Kahn. “This is an improvement over changing structural laws just for the benefits of the largest and most wealthy corporations.”

Kahn says he is prepared to accept criticism and flak for some of the more controversial items, such as reduced school aid and taxation of pensions.

“One of the biggest issues is that we’re going to have to get people to start thinking outside of their own silos,” he says, citing pensions as an example.

“Michigan is one of only three or four states that doesn’t tax pensions,” Kahn says. “Seniors use our Secretary of State offices, seniors use our roads, seniors call police officers, seniors call the Fire Department. I believe our seniors will step up to the plate to help create a future for our children and grandchildren.”

One of the keys to the future, he says, is a tax policy that encourages investment without throwing the state into constant debt.

“There is a lot of hope in this document, and we need to keep our eye on the notion that this is going to give Michigan a structurally sound budget, It’s going to be balanced for two years, and so next year we won’t have to be talking about another series of reductions. We will be able to grow Michigan, and maybe we can create some jobs to give a return to our kids who have left the state for work.”

Another controversial component of Snyder’s budget concerns a plan to eliminate the Earned Income Tax Credit. As another part of closing the state’s projected $1.8 billion deficit, lawmakers are looking at eliminating the credit, worth $354 million this year, which puts more money in the pockets of the middle class and working poor, and provides a refund equivalent to 20 percent of the federal Earned Income Tax Credit.

Snyder claims he views this move not as a tax increase but more as a ‘spending cut’, even though critics point out that if you have a credit that suddenly is no longer available, it most certainly does amount to a tax increase. An estimated 782,560 Michigan residents received the credit last year, according to the Michigan League for Human Services. The average credit to Michigan taxpayers was about $436.00 last year.

The credit was signed into law in 2006 with near unanimous support and refunds disproportionate payroll taxes incurred by low-income workers at a rate of 20 percent of the federal credit. According to the Center on Budget & Policy Priorities, the EITC “lifts more than 4 million people out of poverty each year, half of which are children.”

In 1986, President Ronald Reagan called the credit “the best anti-poverty, pro-family, job creation measure to come out of Congress.” Indeed, it has been so successful that 24 other states have enacted one that piggybacks the federal one, several offering credits beyond the 20 percent offered in Michigan.

Simple repeal of the Michigan Business Tax will create a $2.2 billion hole in the state budget that will also create huge savings for corporations like Amway, which reported record sales of $9.2 billion worldwide last year.

And critics also point to the fact that cost of living increases for state employees and legislators are also included in the new budget, which is something that private small business entrepreneurs and many recipients of the Earned Income Tax Credit do not enjoy.

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