Friday, November 28, 2008

How to kill a business tax

Here's the bad news: There are no easy answers to solve the state's looming $400 million shortfall.

But the good news is, there's an obvious way to slay the much-maligned Michigan Business Tax surcharge. The Legislature rushed this 19.99 percent levy on top of the new MBT late last year in the frenzy to dump the service tax, which was deemed even worse.

The surcharge is now the bane of business owners' existence, with 9 percent telling the Michigan Chamber of Commerce they're considering leaving the state over it.

Senate Republicans have passed legislation killing the surcharge and promise to balance the budget with magical budget cuts yet to be revealed. While that might make Chamber members feel warm and fuzzy inside, it's akin to doing nothing because there's no deal with the governor or Democratic House.

Meanwhile, the credit crunch is smacking around our battered economy even more and unemployment is certain to veer into double-digit territory soon.

Republicans are right: We can't afford to keep a job-killing tax.

So I'll defer to an idea proposed by two GOP lawmakers, Reps. Chris Ward, R-Brighton, and Lorence Wenke, R-Richland. Let's snuff out the surcharge and up the income tax a bit, say between 4.6 and 4.8 percent. That'll cost the average family about an extra fill-up a year.

The time to do it is now, because as the deficit balloons next year, any kind of tax cut will be off the table.

Unfortunately, the odds of this happening are nil. Senate Majority Leader Mike Bishop, R-Rochester, isn't budging from his no-tax stance, even if it'll squeeze the business community. House Speaker Andy Dillon, D-Redford Township, is skeptical.

"We'd be sending the message that we're increasing people's taxes to cut business taxes," Dillon told me. "I was willing to do that a year and a half ago. So if Mike Bishop can find those votes and wants to send something over, he's welcome to."

It's true that Bishop could have OK'd this deal during last year's budget crisis and we wouldn't here today.

But the plan hatched by Michigan Republican Party Chair Saul Anuzis and House Minority Leader Craig DeRoche (dear God) was to force as many Democrats as possible to vote for tax increases. That was the key to a GOP victory in '08.

So what was their plan to solve the $1.8 billion budget crisis? There wasn't one.

Astute readers will recall that Republicans actually lost nine House seats on Nov. 4. And the much-ballyhooed recall campaign failed miserably.

Not one legislator lost a seat over the tax hikes. Not one.

Ward just shakes his head. "Not only did we have bad policy, but it turned out to be bad politics, too."

Of course, Ward did lose. Not his seat - he's term-limited - but his GOP leadership post for being a grown-up willing to deal with the pagan Dems to get more budget cuts, less taxes and more reforms.

Oh, well. I'm sure the Chamber doesn't mind. Neither do business owners slapped with 1,700-percent increases in their tax bills.

Negotiating is for sissies.

Anyway, back to this year's budget mess. What's that you say? Can't we just cut fat out of the budget? I'm with you, brothers and sisters.

The income tax for surcharge was really Plan B. What Ward would actually like to see is cutting Corrections (which eat up $2 billion of our $9 billion general fund) in exchange for the surcharge. Gov. Jennifer Granholm first proposed the swap this summer, but she didn't provided specifics.

Now we have the blueprint, thanks to the $800 billion in cuts proposed by the economic development powerhouse, Detroit Renaissance. That's even more than what the surcharge generates, which is about $600 million this year and more than $700 million in years to come.

"It was something that we should have done during the budget crisis," Ward said.

Amen. Unfortunately, leaders don't want to take on politically unpopular reforms ranging from sentence guideline reform to shuttering prisons. Even the governor said it would be impossible to do everything in the last few weeks.

Corrections is the logical place to start. It's the one area of the budget that's been spared from the chopping block. Our prison population has soared by 538 percent in the last three decades and costs have skyrocketed 5,000 percent, according to the nonpartisan Citizens Research Council. With more than 50,000 inmates, Michigan has the highest prison population in the Midwest. The cost of a year in prison is $30,000 per inmate.

Clearly, something has to be done.

This will be the battle of 2009, make no doubt about it. And everyone, from Granholm to lock'em-up Sen. Alan Cropsey, R-DeWitt, is sure grateful that a third-party group, the Council of State Governments, will be issuing a report with cuts they can hide behind.

Everybody claims credit for a tax cut. But nobody wants to be associated with cuts that could let the bad guys out (and more importantly, be used in political ads against them).

Looks like this budget battle could turn out to be as much fun as last year's. Lucky us.

1 comment:

WCTaxpayers said...

I personally don't care what party they belong to - our representaatives in Lansing have to start doing their job before this state becomes a wasteland. Your right, no one lost their job over raising taxes. It did, however, cost Rep. Dillon almost $500,000 to keep his.

It may be our last hope to try recall again with anyone up there, including Dillon, to save our state and our economy.

Rose Bogaert, Chair
Wayne County Taxpayers Association