LANSING – Newly-named Michigan State Treasurer Robert Kleine, an architect of the Single Business Tax, said Thursday the SBT has become a distraction and needs to be replaced. But his appointment by Gov. Jennifer Granholm immediately recasts the debate over the SBT and the drive by Republicans to quicken its death.
Kleine replaces Jay Rising, who developed last year’s unsuccessful $1.4 billion SBT restructuring plan and who resigned in February to become chief financial officer at the Detroit Medical Center.
Granholm praised Kleine as someone “with tremendous depth and knowledge of our tax system and tremendous depth and knowledge about our economy.” She said he would provide valuable advice on how to make the state’s economy competitive again.
“He knows how to fix it and how to evolve it,” Granholm said of Kleine’s background as one of the author’s of the SBT. “He knows the state has to have an equitable tax climate and a good quality of life.”
The governor said Kleine will also play a critical role in overseeing economic development through the 21st Century Jobs Fund bond plan that is now in place.
Kleine has publicly defended the tax and expressed doubt that a better replacement could be found. But Thursday, he said, “It’s a shadow of its former self and it should be simplified or replaced. It has become a distraction. There’s a consensus in the business community that it’s a bad tax and we have to get over that.”
Reaction was mixed as to what the appointment means in terms of agreeing what to do with the SBT – which currently is to be repealed December 31, 2009 – and how and to what degree to replace the $1.9 billion in revenues it produces.
Like the governor, Kleine said further cuts in revenues threatens Michigan’s quality of life, which he said is a more important factor than tax burden in business investment decisions, and cited a Council on State Taxation study to reassert that Michigan is not a high tax state. The newly-updated study ranked the state 36th among all states in overall tax burden.
Senate Majority Leader Ken Sikkema (R-Wyoming) is just beginning the research on whether Mr. Kleine has the experience and qualifications for the job, but spokesperson Ari Adler said the appointment gives two possible signals to legislators. “If the governor’s appointment of Bob Kleine who is one of the architects of the SBT is an indication that she’s ready to start engaging us on the tax issues, that’s good news. But if it’s an indication that she’s interested in maintaining the status quo no matter what, that’s bad news,” he said.
A similarly cautious assessment came from House Speaker Craig DeRoche (R-Novi) who expressed hope that Mr. Kleine and GOP legislators will work well together. Spokesperson Matt Resch said the speaker “is hopeful that his background in creating the SBT will help in reforming the SBT.”
But State Republican Party Chair Saul Anuzis quickly attacked the appointment, expressing incredulity that Kleine would describe Michigan as a low-tax state.
“The Governor’s appointee must live in the same state as Granholm – the state of denial. Michigan is hemorrhaging jobs. The SBT is a job killer, and here is a guy saying ‘nuh uh.’ It is time for new leadership, new direction, not a return to the old days, to the tax that helped get Michigan in this trouble in the first place. If Michigan wants a better economy, Michigan needs a better governor.”
And Charles Owens, Michigan director for the National Federation of Independent Business, said he sees no movement on getting rid of the SBT with Kleine at the helm of Treasury and will work instead on the petition drive to repeal the SBT. When told that Mr. Kleine had said the tax had become a distraction, he added, “I’m a Baptist and I believe in bedside conversions, but my understanding was that he played a part in the governor’s proposed business tax plan which was an abysmal tax shift. It’s a thankless job and I wish him well, but I’m not particularly encouraged.”
Barry Cargill of the Small Business Association of Michigan said he was looking forward to working with Kleine on devising a new tax system. “He’s been supportive of the status quo and we disagree on some issues, but he’s competent and I like him and it will be good working with him on tax reform,” he said.
Officials with the Michigan Chamber of Commerce and the Michigan Manufacturers Association were unavailable for comment.
Doug Roberts, state Treasurer for former Governor John Engler, praised the appointment as a “terrific choice” because of his knowledge and integrity, and could make it easier to move beyond the current SBT. “The fact that someone who worked so hard on the SBT says it is time to move on and his willingness to say what comes next and his knowledge of tax law is very import in terms of working with the Legislature,” he said.
Kleine, a self-described “Milliken moderate” Republican, is a private consultant and was director of the Office of Revenue and Tax Analysis for former Republican Governor William Milliken when the SBT was created in 1975. In between those duties, he was vice president of Lansing’s Public Sector Consultants.
When former Engler signed the first bills to repeal the SBT in 1999 (cutting the rate gradually until it disappeared in 23 years), Mr. Kleine said the tax was getting a bad rap and defended it on the basis that much of it was paid by auto manufacturers who in turn exported the burden through the 95 percent of sales that took place in other states.
In December, he had said on public television’s Off the Record program that repeal of the tax was not a good idea because a new structure would create new “winners and losers” in the business system. He said the best tax is one with a broad base and low rate, a philosophy he reiterated Thursday.
“I’m not sure if you can come up with anything better,” he had said at the time.
Granholm expressed her own impatience with Republican legislators who are demanding a quicker repeal of the SBT, saying she has given them three options of how to address problems with the tax “and they have come up with nothing.”
Those three options included the restructuring plan that was rejected under criticism of how it shifted taxes to financial and insurance sectors, last fall’s negotiated changes with a $600 million cut (the bills were vetoed because the governor said they did not follow the agreement) and her pledge last month to sign an SBT repeal if legislators would guarantee to not shift taxes to individuals and protect vital budget services.
As he looks at a new tax structure, Kleine said it should have a broad base and low rate. He also said that one thing that will be looked at is spreading the sales tax to services, but would not predict what may be the result of a new look at how to craft business taxes.
“We will be talking with a lot of people and we will be coming up with a plan,” he said.
He reiterated his belief that the sate has a competitive tax rate, and said that other factors such as quality services and an educated workforce, drive business investment decisions more than a tax burden that stands at 4.3 percent of gross state product
“We have cut taxes very substantially and we’ve got to protect vital services,” Kleine said, adding he did not think taxes have been cut so far as to hurt those services. “We’re coming close,” he said, though he said the state is not at a point where tax increases are warranted.
Granholm said she will be asking the business community to work with the administration “to convince the Legislature that the next business tax must be a simple tax, a fair tax and will encourage economic growth.”
Adler defended the Legislature’s approach to finding a replacement tax when it passed the bill providing for an SBT repeal as of Decemb
