Friday, July 27, 2007

Michigan Business Tax...still the worst

The new Michigan Business Tax goes into effect January 1, 2008.  How will this new tax effect Michigan's economy? Read on...

The Michigan Business Tax: Good or bad for the economy of this state?

For thirty-plus years Michigan businesses have paid taxes under the "Single Business Tax", which the National Taxpayers Union called the worst business tax in the nation. It was confusing and difficult to comply with. It penalized employers for hiring new employees and providing them with health insurance. In the late 90's legislation was passed to phase out the SBT completely by the end of 2009 and not replace it. Last year the phase-out date was moved up two years, to the end of 2007.
Discussion began last summer about replacing the SBT because it brought in $1.8 billion in revenue per year. Some, (myself included) believed we should stay with the original plan to NOT replace the SBT.  Others, like the governor, said we needed a "revenue neutral" replacement. Still others suggested a replacement tax that was smaller, simpler, easier to comply with and more inviting to investment in new jobs than the old plan.
Finally, in June, the new Michigan Business Tax, (MBT) was signed into law. Unfortunately, many of the original objectives were not achieved. In fact the MBT:
  • Brings in at least as much revenue as the SBT did. And because it only has a three year cap on total revenue, will likely be an actual tax INCREASE.

  • At over 150 pages, it is more confusing and complex than the old plan.

  • Provides tax relief to business that generally are losing jobs, like large manufacturing firms, but increases the tax burden on businesses that are adding jobs, like insurance, financial services, banking, real estate, and service businesses.

  • Will force companies with increased tax liability to pass that increase on to their customers, i.e. higher insurance premiums, higher mortgage interest, etc.

The bottom line is that in a time when Michigan has the highest unemployment rate, the greatest population and job losses, the lowest personal income growth, the highest foreclosure rates, a loss in gross domestic is not the time to increase the burden on business investors and job creators.

I end with this question. If the MBT provides, as the governor asserts, relief for 70% of business tax payers, but brings in just as much revenue as the old plan, then what does that mean for the other 30%?

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