Everyone loses on service tax

“Senate Republicans are not obstructionists. We are standing up against a mammoth tax increase. This caucus stands for something.” - Senate Majority Mike Bishop, R-Rochester

So far, that something is failure.

After two months of endless bellyaching, Republicans have proven they can’t butcher a wildly unpopular tax.

The oft-slandered service tax – the part of the last-minute state budget deal instantly deemed dead on arrival - now seems poised to take effect Saturday.

Bishop hoisted the white flag Wednesday night after the Democratic-led House passed an alternate business tax and skedaddled home for the weekend.

Republicans seemed stunned they hadn’t gotten their way. After all, they’d slapped their final offer on the table – probably generously written for them by the Michigan Chamber of Commerce – but the Dems’ plan for a permanent, higher Michigan Business Tax surcharge came out of nowhere.

Faced with hardball tactics, Bishop reamed the “uncompromising, partisan” opposition.

“It is clear that the service tax introduced by the governor and carried to fruition by the House Democrats, has been their goal all along,” he sniffed.

What an incredible statement. Despite having public opinion and the entire business community behind him to ax the tax, the baby-faced Bishop admits he was outsmarted by the dynamic duo of Gov. Jennifer Granholm (as Batwoman?) and her Boy Wonder, House Speaker Andy Dillon.

Does anyone really think Bishop has the gravitas to be governor?

The epilogue to the state budget fiasco seems to be following the same script. Much of the GOP and its interest groups can’t quite grasp that they’re not running the show anymore and they need to give a little more – if they want to get anything at all.

Republicans kept congratulating themselves for considering any tax hike. But no one could really think they’d win a small boost to the MBT that died in three years and relied on raiding yet another rainy day fund.

Life’s unfair, kiddies. Minority Democrats learned that the hard way during the era of perpetual tax cuts and cuts to schools and local governments.

Now if hard-line Republicans could have stomached a slightly higher income tax back on Sept. 30, they could have gotten the last two months of their lives back. But more on that in a moment.

As for Granholm and her Democrats, they may have won a pyrrhic victory in shutting down debate. The GOP certainly seems to have acted more gentlemanly in this round and legislators are rightfully milking it for the media and business.

Dillon’s refusal to appoint a conference committee last week – the traditional path - was both bad policy and PR. Ditto the House’s shotgun vote Wednesday night.

Democrats, per usual, seem splintered. For Granholm, keeping the service tax on the books may well be the goal. She christened the idea with her ill-fated two-penny plan, after all, and economists believe the current tax will rake in far more than the $650 million estimated this year.

But Dillon’s contending with a tide of recalls - including his own – and an election for control of the House in 11 months. He’s been much more responsive to business and has pushed tweaks to the MBT in an effort to quell the clamor.

If the service tax starts up anyway, the backlash may have only just begun. That’s exactly what the GOP and Leon Drolet – its anti-tax, recall-happy pal with a big foam pig – fall asleep fantasizing about.

The truth is, everyone’s got it wrong.

The service tax stinks – it’s a capricious, cherry-picked list. And tinkering with the MBT – before it even goes into effect – could well drive business out of our state.

Leaders need to stop focus-grouping the budget. Business lobbyists testifying before Tax Policy committees act like they’re ordering off a menu (“We’ll take a 12 percent surcharge on the MBT with a side exemption for compensation”) - and some feel they’re entitled to skip out on the bill entirely.

Politicians would be better off sitting down with Tom Clay of the nonpartisan Citizens Research Council and letting him scare the crap out of them about the state’s finances, services and schools and where we’re headed.

What they need to do in the short-term is repeal the service tax and hike the income tax from 4.35 to 4.8 percent.

Then for next year, it’s time to think long-term. Bishop could show his leadership chops by championing real reforms to legislator and employee benefits and Corrections, coupled with a graduated income tax that takes a constitutional amendment, but provides a steadier revenue stream. Exploring a fairer service tax would also be prudent policy, since that’s the growing sector of the economy.

Of course, that will never happen. Constructive solutions are the enemy of the poisonous partisanship Lansing is drunk on.

And political courage always shrivels up in an election year.