LANSING – Michigan Senate Republicans launched an effort Thursday to begin restructuring the Michigan Business Tax, hoping to reduce the burden of that tax and spread it more evenly across the businesses of the state. But that effort began on a sour note with the defeat by the Senate of SJR E to provide a buffer between expected revenues and spending.
The key points of the plan announced Thursday were eliminating the surcharge on the MBT, removing certain taxes and fees from the gross receipts portion of the base and reducing the cost to the state of some of the economic development credits. But Senate Majority Leader Mike Bishop (R-Rochester) said at a media roundtable there would be additional elements coming including proposals for spending cuts and reforms to account for the revenues lost by the tax changes.
“The purpose is to remove obvious impediments to economic development,” said Senate Finance Committee chair Sen. Nancy Cassis (R-Novi), whose committee will address much of the package.
Bishop said the changes the caucus is proposing, and others, were expected. “We knew with something as big as this we were going to have to keep on top of it and when issues popped up we were going to have to address them,” he said.
Cassis said the MBT was sold as a replacement for the Single Business Tax, but she said it has turned out to be more than that. She said the tax, with the 21.99 percent surcharge, is on track to collect $2.2 million, an increase from the $1.7 million collected under the SBT.
“It’s hitting our small businesses,” she said. “A lot of them can’t even hang on any more. They’re letting people go.”
“We have to make a dramatic change in the way we’re operating,” Bishop said. “Now more than ever we’ve got to mix it up. We’ve go tot put ideas on the table.”
In addition to the bills reported Thursday and the legislation to change the definition of gross receipts slated for floor action next week, the package will also contain measures that would prohibit future Michigan Economic Growth Authority and Anchor Company abatements from being refundable credits. Cassis said it was fair to reduce a company’s tax liability to nothing, but not fair to pay them for their development.
Bishop said he looked forward to the ideas that would come from the House and the Granholm administration.
But he said Thursday’s action in the Senate was disappointing considering the changes that were needed.
“We had hoped SJR E would be the way to ease into the process of dramatic reforms,” Bishop said.
The proposed constitutional amendment would have limited the state to a percentage of the annual revenue estimates for setting its budget and required a two-thirds majority to withdraw money from budget stabilization fund.
The measure received a party-line vote, which upset Bishop. But he became incensed when the Democrats then all moved to have their names removed as co-sponsors to the proposal.
The measures that saw positive movement Thursday were SB 1242 , to speed up elimination of the MBT surcharge, and SB 1535 , to cap the film tax credit.
The measure to end the surcharge, added to the MBT to fix the 2007-08 budget, in three years, not 10, saw vocal opposition only from the administration. The measure was reported on a party-line 4-2 vote, but Sen. Gilda Jacobs (D-Huntington Woods) said that vote largely represented concern that the plan did not yet include a way to absorb the lost revenue.
The phase out would drop the expected surcharge revenue from $724 million for the current tax year to about $482 million in 2009 (a 14.66 percent surcharge) and $241 million in 2010 (7.33 percent). The surcharge would be eliminated in 2011.
“It’s not that I don’t feel we need to make some changes with the MBT and the surcharge,” Jacobs said. “Until I get some sort of sense what the big picture’s going to be, I’m not comfortable voting for this.”
Scott Schrager with the Department of Treasury said the administration would back it if the Senate would adopt the corrections changes Governor Jennifer Granholm had proposed to reduce spending in that department. Those changes have met with concerns that the state would be letting dangerous criminals back on the street in the name of saving money.
The proposal to cap the film tax credit saw more impassioned opposition, as film students, directors and studio owners, in addition to administration officials and House members, argued the proposal was premature and would potentially scare away a budding industry.
As reported, the bill would cap the credits at $50 million a year, but would allow those who had commitments for the current year to carry those forward to the 2009 tax year.
The greatest concern, Cassis said, is the tax credits are costing the state, pushing the burden of developing that industry onto other businesses. Concern became more acute with a presentation from Senate Fiscal Agency that showed $148 million in tax credits had already been approved that would be a net cost to state coffers of $1.22 million if they all are realized.
David Zinn with the SFA said estimates when the credit was passed were there would be less than $130 million and would actually cost the state about $99 million.
Concern was also raised that some of the credits are paid in advance and that the credits can essentially be sold.
Sen. Jud Gilbert (R-Algonac), at the roundtable discussing the unfairness of including the sales tax in the gross receipts calculation, said, “Then we turn around and send a check to Hollywood to some Pee Wee Herman type.”
Rep. Andy Meisner (D-Ferndale) urged the committee to compare the results of the measure to other incentive packages, not to compare its costs to other state expenditures.
“It’s not an out of the ordinary thing to use tax expenditure to stimulate investment,” Meisner said.
“Oftentimes you’re not going to see benefits immediately,” said Rep. Bill Huizenga (R-Zeeland).
Huizenga also urged the committee not to under-value the film industry. “I get so frustrated with this notion that if it doesn’t have four walls and a big machine in the middle going kerchunk, it’s not a job,” he said.
But Cassis argued the two members of the lower chamber had no stake in the battle if the program causes the state’s budget to go south. “You are term limited. You don’t have to worry about what happens in 2009 or 2010,” she said.
Anthony Wenson with the Michigan Film Office, and others, said the amount of approved credits was not the amount the state would actually be paying. Based on activity in other states, he said that amount was probably closer to $115 million.
“Be prudent and let this incubation period move forward before you start capping,” he said, adding the office would likely have more accurate numbers on the amount of credits that would be claimed near the end of the year.
He also questioned the figures on the overall economic effect of the industry. Zinn had noted a wide range of formulas for determining how much the investment in a film turns over in a state’s economy, and Mr. Wenson said his office was working with the University of Michigan to develop a more accurate formula for the state.
Schrager raised particular concern that the bill, at least as introduced, would cap the credits at below what had already been guaranteed. “It’s one thing going forward to act. It’s another to put in jeopardy commitments the state has already made,” he said.
Comparing the concerns raised by the committee to those of some investors in the current market, he said, “To some extent this is a little like panic selling in the stock market.”
Wenson and others argued the action Thursday was also creating some panic in the industry. “It could create some pullback,” he said. “The pullback isn’t from Hollywood; it’s from our own s
