07/08/2007

Op-Ed

New tax won't solve our problems

By Jack Lessenberry
Columnist
Bucca@
aol.com

LANSING — Finally, after nearly a year of fighting, wailing, name calling and dire predictions, Michigan has a new business tax. What was perhaps most stunning was the rare spectacle of enthusiastic bipartisan agreement.

"This is a win for both business and citizens and completes another plank in our plan for economic growth,” Gov. Jennifer Granholm said when the tax was finally passed.

Her archrival, Senate Majority Leader Mike Bishop (R-Rochester) said the new Michigan Business Tax was "a fair and equitable tax” designed to allow "companies to expand and encourages new economic development and growth in Michigan.”

The two even shook hands. That may not sound like a big deal, until you consider that, well, they seem to hate each other.

The week before, Bishop openly called the governor a liar, and she essentially responded in kind. And actually, the senate leader did not shake hands with her in front of the lawmakers as she would have preferred; she had to follow him into a antechamber.

Fortunately, as this episode proved once again, there is no law saying you have to like each other to work together. But passing a new comprehensive business tax doesn't mean that Michigan government is out of the woods.

Far from it. The really hard part lies ahead. The state is still headed for what economists are calling a fiscal "train wreck” unless the politicians do something to fix the yawning, $1.8 billion budget deficit projected for fiscal 2008, which in Michigan begins Oct. 1.

To be sure, enacting the Michigan Business Tax was essential to prevent utter economic collapse of state finances. Last year, the lawmakers abolished the old Single Business Tax, effective Dec. 31, 2007, without putting anything in its place.

That would have added a further $1.9 billion to the deficit. Republicans initially insisted that any new tax had to give business a massive tax cut. Democrats held out for one that would raise the same amount of money, and prevailed.

"This is as close to revenue-neutral as we can calculate,” said Robert Kleine, the state treasurer.

The new tax is, however, structured far differently. The vast majority — 78 percent — of Michigan businesses should see an overall tax cut.

The big winners will include Michigan's beleaguered manufacturing sector. The biggest losers apparently will be the insurance and financial services industries, plus firms headquartered out of state. The Meijer chain of mega-stores, for example, is a winner because it is run from Grand Rapids.

Wal-Mart, on the other hand, will pay more. Two other key changes pleased business people: The Single Business Tax penalized firms by taxing them more when they hired more workers; the new tax doesn't do that.

State officials hope that will help spur job creation as a result. Under both the SBT and the new MBT, Michigan businesses had to make more than $350,000 a year before paying any tax at all.

But under the old tax, a firm making $351,000 then had to pay on the entire amount. Under the new tax, they would only pay taxes on the $1,000. Not surprisingly, Rob Fowler, head of the Small Business Association of Michigan, likes the new tax.

Now, however, the Legislature must tackle the impending huge deficit for the next fiscal year. There is little left to cut. There are no more rainy day funds to loot, or accounting tricks that can be played.

The state has borrowed against future tobacco revenues. The deficit may be larger than $1.8 billion because tax money coming in has been falling short of projections, in part due to layoffs.

It is virtually impossible to see how Michigan can avoid a tax increase. The governor wants a slight income tax increase coupled with a tax on services. She said last week that Senate Majority Leader Bishop agreed that is necessary.

But that's when he called her a liar. Meanwhile, former State Rep. Leon Drolet (R-Macomb) vows to wage a vigorous campaign to recall any legislator who votes for any tax increases.

State Rep. George Cushingberry (D-Detroit) told the governor to "take a chill pill” when she suggested they skip vacation till the budget work was done. Look for the antics to continue, and stay tuned.

Footnote on factory farms: Last week I wrote about the package of bills passed by the Michigan Senate that was designed to put fewer restrictions on most so-called "factory farms,” or CAFOs (Concentrated Animal Feeding Operations.)

The bills would waive the need for most CAFOs, some of which produce 100,000 gallons of manure a day, to get environmental permits. Environmentalists reacted with alarm, saying there was clear evidence CAFOs pollute the water supply. Animal rights activists shot back that CAFOs are vast torture chambers of unspeakable cruelty and should be banned.

Since then, State Sen. Ray Basham, (D-Taylor) introduced his own package of bills designed to regulate CAFOs much more strictly.

They have little chance in the GOP-run Senate, but Democrats plan to introduce similar legislation in the House, which they control. Their goal will be more, not less, regulation of factory farming.

Contact Jack Lessenberry at Bucca@aol.com or write to him at 189 Manoogian Hall, Wayne State University, Detroit, MI, 48202