LANSING – The stage is set for the latest act in the ongoing drama of what to do with Michigan’s Single Business Tax after the Michigan Senate on Wednesday passed HB 5743 on a 21-17 vote. Under the bill, the SBT will be eliminated on December 31, 2007, two years early.
Senate Appropriations Committee chair Sen. Shirley Johnson (R-Troy) was the only Republican to join a solid Democratic caucus opposing the bill.
In a press release Gov. Jennifer Granholm said she is willing to eliminate the SBT only if adequate protections are made to ensure individuals are not stuck with the $2 billion tax bill. Eliminating the SBT means families will either have to pay as much as $800 more in taxes each year to make up the shortfall or see state budgets for education and health care gutted, she said.
Arguments by Republicans that they did provide protections within the bill against individuals being targeted for the replacement were dismissed by Granholm’s spokesperson as ineffective and possibly unconstitutional.
Passage of the bill was both hailed as putting out the welcome mat to business and damned as the “most regrettable act of political cowardice” ever enacted.
Presuming HB 5743 is vetoed, waiting in the wings is a petition drive launched by Oakland County Executive Brooks Patterson to also eliminate the SBT by December 31, 2007. If that proposal gets enough signatures by the end of May to be certified for the ballot then the Legislature could effectively re-enact HB 5743 knowing it could not then be vetoed by Granholm.
The bill was amended from the form it was reported by the Finance Committee, which would have ended the tax on September 30, 2007. The elimination date was moved back to December 31 in part because of concerns the change would affect various corporate fiscal years.
The measure includes a provision that the Governor’s Council of Economic Advisors will propose alternative taxes to the Legislature by January 1, and that taxes that directly affect individuals, such as the income tax and sales tax, will not be raised to make up for the revenue loss.
The somewhat lengthy debate between the two caucuses focused on two issues: Republicans arguing how critical it was to eliminate the tax to help spur business development in Michigan, and Democrats arguing that it was irresponsible to eliminate the tax with no plan for replacement revenue.
Senate Majority Leader Ken Sikkema (R-Wyoming) said it was in fact riskier not to do anything than to enact the accelerated elimination of the SBT.
“This is not an easy thing to do, to replace the business tax,” Mr. Sikkema said. By accelerating the elimination date the Legislature creates a situation where it has to act within 21 months to replace the tax, he said. He was confident the Legislature would accomplish that (and as a veteran of the Christmas Eve session of 1993 that drafted the Proposal A school finance measure gave his best wishes to that future Legislature), but waiting until a replacement tax is found will not work.
“I am convinced this tax will never, ever go away unless we first end it and require the governor and Legislature to come up with a replacement,” he said.
Sikkema and other Republicans also argued that it was disingenuous for Democrats to say a replacement should be enacted since no replacement was envisioned when the 2009 elimination date was set.
But Sen. Michael Switalski (D-Roseville) riposted that that comment was disingenuous because the 2009 date was set in 2002 as part of an overall budget package to keep that year’s budget balanced. The 2009 date was put in to mollify businesses because the SBT rate was not going to be reduced that year, he said.
And Senate Minority Leader Bob Emerson (D-Flint) said passing the bill was dishonest because it put the effort to write a replacement on a future Legislature. The Legislature that ended property taxes for schools in 1993 was also the Legislature that drafted the replacement plan, he said, and this Legislature should do the same thing.
In the House, Rep. Leon Drolet (R-Clinton Twp.), sponsor of the bill, said with Senate passage the burden of getting rid of the SBT is now up to the governor. “The governor has got to step up and join the House and the Senate in a bipartisan way.”
Drolet, who would like to see no replacement made to the SBT but said he understands he’s in the minority for that viewpoint, added that the Senate’s amendment to call on the governor’s council of economic advisors does not mean that another group can’t come up with a replacement as well.
The House must still concur in the Senate changes, which will most likely not come up for action until next week, said Matt Resch, spokesperson for House Speaker Craig DeRoche (R-Novi).
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