LANSING – An increase in the liquor tax and a new state tax on estates, key proposals in Gov. Jennifer Granholm’s 2005 budget, were rejected by large margins Wednesday in the Republican-controlled House.

After the votes rejecting an increase in the liquor tax and the preservation of a state tax on estates, Republicans scuttled plans to take up Granholm’s proposed 75-cent per pack increase in the tobacco tax.

Both proposals went down to crushing defeat, especially the liquor tax measure, which would increase the mark-up from 65 percent to 74 percent. Fewer than half of House Democrats supported the bill (HB 4865) as it failed on a 22-81 vote. The estate tax fared better, but still fell far short of the 55 votes needed for passage on a 33-70 vote. No Republicans voted for either bill.

House Speaker Rick Johnson (R-LeRoy) said based on Wednesday’s votes, it is “very unlikely” that the House would reconsider action on the estate and liquor proposals. And the cigarette tax increase is in jeopardy, he said.

“I’m not going to pass all these governor’s tax increases with Republican votes when the Democrats aren’t voting for them,” he said. “If she wants these taxes, she’s going to have to start talking to them.”

Ms. Granholm has proposed the three tax measures as a key piece to bridging a $1 billion shortfall between available revenues for the 2004-05 fiscal year and existing spending. They would provide about $400 million toward bridging that gap.

A 75-cent per pack tobacco tax increase would raise $295 million in new revenue. The liquor tax increase (HB 4865) would generate money to fully fund grants to municipalities providing fire protection to state buildings in their jurisdiction and another $32 million for the state’s general fund.

Maintaining a state tax on estates (HB 5708) would raise $94 million for the 2004-05 fiscal year and $130 million in new revenue for 2005-06, all of which would be put into the Medicaid Benefits Trust Fund. Michigan’s estate tax is tied to the federal levy, but the federal levy is scheduled to end in 2010.

Under Ms. Granholm’s proposal, estates of $1 million or more ($2 million or more for married couples) would be subject to a tax ranging from 4.8 percent to 16 percent depending on its size. Assets from family-owned businesses and farms and estates left to surviving widows would be exempt from the tax.

Eighteen states and the District of Columbia have enacted similar laws “decoupling” from the federal estate tax.

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