August 10, 2006

Days are Numbered for Michigan's Single Business Taxes

Despite objections from Michigan Governor Jennifer Granholm, both Houses of the Michigan Legislature voted to repeal the state's Single Business Tax (SBT) on December 31, 2007.

The Single Business Tax brings in about $1.9 billion dollars into the state's coffers and is the major tax levied on businesses in the state. The tax accounts for one-fifth of the entire state budget.

The current SBT battle has quite a history. The SBT was set to repeal at the end of the 2009. Governor Granholm vetoed legislation that would have accelerated the repeal because replacement revenue wasn't identified. She even introduced her own revenue neutral plan in 2005 that wasn't well received. A citizen initiative accelerating repeal was approved for the November ballot. However, voters won't have the opportunity to vote on this issue because of the Legislature's actions yesterday and the Governor has no veto power over the decision because the issue was already approved for the November ballot.

The sheer magnitude of a repeal this large is quite overwhelming. One-fifth of the budget pie is a pretty big piece, right? So you'd think that legislators with any regard for future needs, economic development and an understanding of the consistency that businesses need when deciding where to locate would at least have proposals on the table for how to make up this lost revenue. Sadly, as reported in this article, Michigan lawmakers are currently debating some plans, but few specifics have been made public. There's even debate about how much of the $1.9 billion should be replaced. Lawmakers appeared to have done the easy part - cutting taxes on business, but the really hard part - figuring out how to replace that revenue is just around the corner.

The Michigan Chamber of Commerce appears to be celebrating the SBT repeal as a victory, Standard and Poor's has another opinion entirely. A preliminary S&P analysis released by the Governor said,

"The repeal of the $1.9 billion tax creates a structural imbalance for fiscal 2008 that exceeds any one year imbalance that the state has faced in the prior recession."

The agency said the magnitude of the revenue loss and political uncertainty "cloud the likelihood of a true and timely structural solution."

Let's hope other state's don't follow in Michigan's footsteps and repeal or alter their own business taxes in such a flawed, thoughtless way.


At 3:51 PM, Anonymous Mary Jo Stewart said...

I am curious as to which Party was the majority in the year the SBT was thrust upon the business men and women of Michigan.


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