LANSING – Businesses would no longer pay tax on what they spend to provide health insurance to their employees under a bill passed this week by the Michigan House.
Republicans, who control the House, hailed the measure as a way to improve the business climate in Michigan while also encouraging businesses to offer health insurance to their workers. Democrats criticized the measure, which would reduce state revenues by about $25 million in 2006 and $33 million each year afterward, as fiscally irresponsible and touted Democratic Governor Jennifer Granholm’s plan to overhaul the entire Single Business Tax as a more comprehensive approach to addressing flaws in the tax.
Granholm has called for reshaping the SBT by cutting the tax rate from 1.9 percent to 1.2 percent, changing the formula to base the tax 100 percent on sales, providing a credit to manufacturers on personal property taxes paid, ending some current credits like those for unincorporated companies and creating a 2 percent tax on insurance premiums. Unlike the House GOP bill, Ms. Granholm’s plan would keep in place the SBT’s taxation of money spent by businesses to provide health insurance to their workers.
The 66-44 vote – which saw eight Democrats join all 58 Republicans to pass it – sends the legislation (HB 4342) to the Senate, which has not yet indicated whether it plans to pursue the bill.
The debate in the House was a role reversal from what happened in the Legislature 10 years ago when it was similarly engaged in how to retool the Single Business Tax to make it more business friendly. In 1995, Democrats were defeated in their efforts to remove health care costs from the tax by Republicans, who instead passed a more comprehensive Single Business Tax bill.
But this year, House Republicans have pushed the measure while waiting for Granholm to introduce her plan. Although the governor has announced the broad details, it has yet to be introduced in bill form for the Legislature to consider.
“You either think it’s okay to tax health care, or, like me, you think that taxing health care is the wrong thing to do,” said Rep. Tim Moore (R-Farwell), the bill sponsor.
But Democrats said Republicans have failed to explain how they would pay for the bill with its revenue-reducing implications. Rep. Gretchen Whitmer of East Lansing, the top Democrat on the Appropriations Committee, accused the House GOP of hypocrisy because it has subjected all spending to a new budgeting process where all programs start the fiscal year off at no funding. The same process also calls for tax cuts to be subjected to the same scrutiny, but Republicans allowed it to escape such examination, she said.
Further, she suggested that the House was acting to placate the Michigan Chamber of Commerce, which is largely funding the $700,000 to pay consultants helping the Legislature with the new budgeting process and a major proponent of removing health insurance costs from the business tax.
“I will not stand idly by while the business community gets special treatment and the vulnerable, the children and the elderly get shafted,” she said.
But Wendy Hofmeyer of the Chamber denounced the allegation as “ridiculous” and said there were “no ties” between Wednesday’s vote and the organization’s funding of the consultants shepherding the Legislature through the revamped budget process.
“This was something that the House Republicans felt was important to pursue,” she said. “We don’t trade votes like that. That’s not the way we operate.”
that the measure contains no mechanism to pay for the lost revenue and, unlike Ms. Granholm’s plan, fails to take a comprehensive approach to the problems in the Single Business Tax.
“It strikes us as more of the same piecemeal approach to SBT issues that we’ve seen over the past few decades,” she said.
Ms. Boyd would not say when Ms. Granholm would introduce her plan in the Legislature, saying only that it would be “sooner rather than later.” She asserted that the five-week lapse between since Ms. Granholm announced her plan is well in line with the timetable past governors have used when introducing major legislation.
The bill now goes to the Senate where Republicans in control of the chamber have been more circumspect about the proposal. Ari Adler, spokesperson for Senate Majority Leader Ken Sikkema (R-Wyoming), said Senate Republicans support the idea “in concept” – and he noted Sikkema’s push in the December 2003 budget negotiations for legislation that will in 2007 cut in half the SBT’s taxation of health care costs.
“We’re in a tough economic situation so everything has to be run through a budgeting prism,” he said. “But at the same time, we shouldn’t dismiss good ideas just because they’re going to cost some money. It’s a balancing act.”
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