October 17, 2006

Michigan Businesses React to SBT Repeal

These days the lesson for many Michigan businesses is to be careful what you wish for.

For years, Michigan's business community sought the repeal of the state's major business tax the Single Business Tax (SBT). The tax was established in 1975 and in recent years has come up against enormous opposition. Business leaders across the state including the Michigan chapter of the National Federation of Independent Businesses lobbied for the complete repeal of the tax. During this debate many claims were tossed around by business interests claiming that some businesses were leaving the state and that others would never move to Michigan because of the SBT.

Some pretty vicious back and forth between the legislature and Governor Jennifer Granholm ensued. The tax was scheduled to be repealed in December of 2009. However, an initiative was placed on the ballot and the legislature passed an early repeal of the tax that would take place less than a year from now. Because the initiative was slated for the November ballot and the Legislature passed the proposal, Governor Granholm's approval wasn't necessary.

Repealing this tax leaves a $1.8 billion hole in the state's budget. There are also no firm proposals regarding what type of business tax will be enacted to replace it. Now some fear that businesses won't be inclined to locate in Michigan because of the uncertainty surrounding Michigan's business tax structure. Businesses appreciate, need, and expect some consistency when it comes to paying their bills. The big gap in the state budget created by the repeal of the SBT will have to be filled somehow. Thanks to the SBT repeal, businesses leaders are right to hesitate before deciding whether or not to move to Michigan.

For more on the long term impact of short-sighted tax policy decisions like this one, check out Tax Cuts on Layaway: The Short- and Long-term Fiscal Implications of 2006 State Tax Actions from the Center on Budget and Policy Priorities.


At 9:48 AM, Blogger Brandon said...

I think you're right to point out that businesses appreciate government stability, especially when it comes to taxes. But you suggest that the "big gap in the state budget created by the repeal of the SBT will have to be filled somehow." Why is this necessarily true? Wouldn't another solution be to cut spending?


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