LANSING – With the clock now ticking on the quickened demise of Michigan’s controversial single business tax following the submission of some 372,000 petition signatures on Tuesday, legislative leaders began the process of coming up with replacement taxes for all or most of the $1.9 billion the current system produces.
Senate Majority Leader Ken Sikkema (R-Wyoming) and House Speaker Craig DeRoche (R-Novi) established a special six-member Senate-House bipartisan committee that will study the matter and recommend a replacement by December 1, with a vote on the replacement proposal then planned before the end of the year.
The two said the Legislature will enact the earlier repeal after the petitions are certified. That would mean the issue would not go on the November ballot and would not be subject to approval by Gov. Jennifer Granholm, who earlier this year vetoed identical language. If the Legislature did not adopt it, it would go before voters in November.
Oakland County Executive L. Brooks Patterson, who led the initiative, said he does not have a favorite means of replacing the SBT, saying he is “studying the various proposals” and is interested to see what the Anderson Economic Group will provide to the House as a result of its review of the best tax practices in the top 10 high-growth states.
“I’m confident they will come up with a plan,” he said. “They’ve got a year and a half to do it.” He said he expects the replacement will encompass several taxes, and would not rule out supporting some extension of the sales tax to services.
The new bipartisan Senate-House committee’s duties – other than finding an SBT replacement – include recommending legislation to protect the integrity of existing tax credits including those related to the Michigan Economic Growth Authority, brownfield development and renaissance zones.
“This joint committee has a difficult but necessary task ahead of them,” Sikkema said. “We must find a way to replace the SBT with a responsible, fair and pro-growth business-tax structure if we want to put Michigan’s residents back to work in Michigan. I am committed to getting this done, even if it’s the last thing I do in office.”
The term-limited Sikkema leaves office as of December 31.
DeRoche said the replacement tax must be fairer and be a structure that helps create jobs. “That won’t be an easy job, but it is a necessary one,” he said.
Patterson is urging a net tax cut of some $400 million after replacement taxes are implemented and said it is a “red herring” to claim that level of lost revenues will mean drastic cuts in essential state services. He said he remains convinced that the cut will inject a boost to the state’s economy and that state government will have to look at some recommendations from the Mackinac Center for Public Policy to shed costs, such as privatizing some programs such as teacher health care.
Patterson said it is not necessary that voters know what kind of replacement tax will be crafted before they go to the polls in November to elect new members of the Legislature.
Rather than preserving tax breaks for business location or expansion, Patterson said he would like “a better tax which gives everybody a chance to succeed.” He said tax breaks are being used “for political purposes” and are inappropriately used to help a company relocate from one Michigan site to another, rather than to lure a company from another state.
Granholm spokesperson Liz Boyd reiterated the governor’s position that the tax needs to be changed, and said the proposal that the Legislature rejected last year would have “ended the SBT as we know it. When the county executive launched his drive, the governor said she was ready to work on the next reform too. She believes it can and should be done this year.”
A key difference with some legislators is the governor’s insistence that the revenues be fully replaced, with Ms. Boyd saying Ms. Granholm “respectfully disagrees” with Patterson that hundreds of millions of dollars more can be cut from state government.
“Elimination of the SBT is the easy part; replacing it is the hard part. There is no magic bullet,” Boyd said. She added the governor has asked new Treasurer Bob Kleine to look at a replacement tax, but in the meantime stands by last year’s plan.
Businesses are already scheduled to receive $575 million in tax cuts over four years under the current SBT with the changes enacted in December following negotiations between Granholm and Republican legislative leaders.
Sikkema spokesperson Ari Adler said the majority leader is not insistent that the new tax structure involve a net cut in revenue as long as it meets the fundamental requirement of being pro-growth, fair and responsible.
The new six-member committee will look in part like a workgroup, bringing in experts and having public hearing-style meetings to see “what ideas are out there,” Adler said.
The proposed initiated law would repeal the SBT on December 31, 2007, two years earlier than is now scheduled in current law.
The committee will be co-chaired by Sen. Nancy Cassis (R-Novi), who led an exhaustive string of Senate Finance Committee hearings across the state on Ms. Granholm’s plan to restructure the SBT, and House Tax Policy Chair Rep. Fulton Sheen (R-Plainwell), who also has been leading a tax restructuring subcommittee. Also on the panel are Rep. Bill Huizenga (R-Zeeland) and Rep. Andy Dillon (D-Redford), who notably teamed up last year to develop the tobacco securitization plan for a high-tech job investment program that was adopted instead of the governor’s original proposal for a voter-approved $2 billion bond.
Others are Sen. Alan Sanborn (R-Richmond) and Sen. Buzz Thomas (D-Detroit).
Cassis, whose hearings gathered business reaction to the Granholm SBT restructuring plan, said meeting the December 1 deadline will mean the committee will need to be “extremely focused and well-organized and try to reach consensus as much as possible.” She said the committee members will have to work together first to agree how they will proceed to make the economy more “pro-growth. This is crunch time.”
The committee is to be created on Wednesday, and Cassis said the first meeting will likely be held prior to the summer recess.
Aside from the hearings last summer that both the Senate committee and the House Tax Policy Committee conducted on the governor’s proposal, Cassis said other information will also be available, such as a Senate Republican special report on taxes two years ago and the models developed by outside business groups.
“We want to take as much information as we can about the states we compete with, see how we can level the playing field so can compete with them, and we want to look at their tax codes,” Cassis said. “Then we will use our own expertise to come up something unique to Michigan.”
House Minority Leader Dianne Byrum (D-Onondaga) said she is looking forward to the work of the committee, which she is expecting and hoping will “truly work in a bipartisan way. Everybody agrees that the SBT is going away. It’s in everybody’s best interests to rebuild the revenue stream and the sooner we do that, the sooner we can do away with (the SBT).”
She said the jury is still out on whether that task can be completed before the end of the year.
Republican gubernatorial candidate Dick DeVos will not propose his own SBT replacement plan – he has said that is not possible without access to Treasury data to assess how various aspects affect businesses – but campaign spokesperson John Truscott said he will outline the parameters of what he would look at. In the meantime, he said he would see what the Legislature and the new committee develops and “if it is beneficial to the state, he will be supportive.” He said it would not be appropriate before the election to coordinate his plans with those of
