LANSING ? Michigan House Republicans passed their plan Wednesday to provide tax relief for Michigan businesses, but Gov. Jennifer Granholm remains opposed to the proposal and Senate Republicans are uneasy with it, both because of its budget implications.
Granholm proposed her own plan to rework the Single Business Tax in January. She and legislators from both houses and both parties have been in negotiations throughout the summer.
The essential differences between the governor’s plan and the House GOP’s: Granholm’s plan would provide a bigger tax cut sooner to most businesses and recoup the lost revenue by raising taxes on other businesses while the GOP plan would provide a more gradual tax cut to all businesses with no broad tax increases and a net reduction in revenue. The House GOP plan does close some tax exemptions to make up for some of the lost revenue.
House Speaker Craig DeRoche (R-Novi) said it was time for action on the much-discussed issue, considering Michigan’s economic problems. Earlier this summer, he promised a House vote on business taxes by Labor Day whether it was on a compromise plan or a House GOP-authored proposal.
“It seemed to me there was a void of people willing to make tough decisions,” he told reporters after the vote. “But there’s only so long that I’m willing to sit back and read bad news in the paper.”
DeRoche indicated willingness to restart negotiations.
“I am open to suggestions on improving the plan,” he said. “By my estimation, I know I don’t always get everything right.”
But Granholm spokesperson Liz Boyd slammed the House-passed plan as “irresponsible and out of touch with reality. It’s a step backward.”
Boyd said it commits the state to continued structural deficits and imperils health care for senior citizens and funding for education.
“We have been at the table and there have been discussions under way,” she said. “This is not constructive to the process.”
Granholm’s plan provided “significant cuts” in taxes for business and did so in a responsible way, Ms. Boyd said. She said the governor and the House Democrats, whom she said cast a difficult vote, are second to no one in their commitment to creating a climate that is more hospitable to job creation.
Asked if the governor would accept a plan that is not revenue-neutral beyond 2005-06, Boyd said, “What has to occur is all parties, including the Senate, come back to the table and negotiate in good faith as we have been doing.”
House Minority Leader Dianne Byrum (D-Onondaga) said she remains hopeful that the sides can strike a deal despite Wednesday’s vote.
“We are very much still interested in negotiating,” she said. “From my side of the aisle’s point of view, we want to pass something that we can all feel proud of and can get the governor’s signature.”
Democrats also questioned how much the Republican plan would help manufacturers, which have been especially hard-hit. Ms. Granholm proposed a credit equal to 35 percent of the personal property taxes they pay in contrast to the House GOP’s 15 percent.
DeRoche denounced criticism that the tax cut would force spending cuts to the state budget, saying economic growth from the tax cuts would produce enough revenue to make up for revenue lost in the tax cuts.
“To say that we cannot afford this tax cut is an irresponsible statement and is not based in fact,” he said. “We believe that these tax cuts will lead to more revenue into the state, not less.”
A spokesperson for Senate Majority Leader Ken Sikkema (R-Wyoming) withheld detailed comment on the House plan, saying it will take time to analyze it and consider its impact. Ari Adler said Senate Republicans had been encouraging their House counterparts to develop a plan “they thought they could pass. Now this allows us to address its specifics.
He said there may be concerns about the immediate impact on the budget and a desire to look at the benefits House backers say the plan will produce, but added a final package will require more work that will involve parts of proposals from the governor, House and Senate.
“We have been negotiating in good faith all along and the House felt it had to move along with a plan; we can still negotiate in good faith,” he said. “We are in such dire straits in Michigan that one single plan is not going to do it,” he said.
All involved are changing their focus to the budget, which faces a September 30 deadline for completion before the 2005-06 fiscal year begins October 1. No new negotiations are scheduled on taxes.
The House Republican proposal, passed on a party-line vote, would give manufacturers a credit toward their Single Business Tax equal to 15 percent of the personal property tax they pay on industrial personal property in 2006-08 (with the credit rising to 20 percent in 2009 and beyond.
Manufacturers would receive up to a 50 percent credit for industrial personal property purchased in 2006 and 2007.
The Single Business Tax gradually would be shifted so that a business’s tax becomes entirely based on sales. Currently based 90 percent on sales, 5 percent on property and 5 percent on payroll, the tax would go to 95-2.5-2.5 in 2006 and 100 percent sales in 2007.
The SBT rate would drop from 1.9 percent to 1.8 percent in 2007 and 1.7 percent in 2008. In 2009, if revenues are forecast to be $80 million above expectations, the rate would drop by 0.05 percent. Such decreases could occur four times, but the bill maintains existing law that repeals the entire Single Business Tax Act in 2010.
The plan also would over several years remove the cost of health care from the SBT.
House Republicans estimate their plan would cut taxes by $1.67 billion over five years, though money raised by closing or reducing tax exemptions as well as other measures leave the net reduction in state revenue at $782.7 million over that period.
The bills passed by the House that would close or reduce several tax exemptions most notably includes one that aids companies whose principal expense is salary. Other tax exemptions that would be eliminated or reduced: the end of a sales/use tax exemption for the purchase of driver training vehicles, the elimination of the use tax exemption on international calls and permission for local governments to adjust property taxes upward on businesses with increased occupancy (they already must adjust downward for decreased occupancy).
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