LANSING – In what could prove to be a major step toward ending the final deadlock on the 2009-10 budget, Senate Republicans developed a proposal Thursday that would raise more than $300 million a year for the next two fiscal years, with the proviso that the money would then go to reducing the surcharge on the Michigan Business Tax.

The Senate adopted the largest elements of the plan Thursday night: freezing the Earned Income Tax Credit so it will not increase as scheduled and making changes to the Michigan film tax credit, along with tying the changes to the phase-out of the surcharge.

The proposals represent the first time the Senate GOP has offered to put revenue increases on the table to help solve the 2009-10 and 2010-11 budgets. They also came little more than a day after Senate Majority Leader Mike Bishop (R-Rochester) said he was cool to the idea of more revenues to help balance the budget after the House passed some measures.

But Bishop told reporters that in fact what was adopted was a tax cut that would help attract businesses to the state, but would also help the state’s schools. He said several times he and his caucus had not changed their position on raising revenues for the budget.

The proposal did not create revenues “just for the filling of holes,” Bishop said. But he was supportive of making revenue changes “if we can deliver a tax cut to bring jobs back to this state.”

And while House Democrats and Governor Jennifer Granholm have made no commitment to the proposal, Bishop said he hoped it would challenge them to look at ways to “incentivize this economy.”

House Minority Leader Kevin Elsenheimer (R-Kewadin) said there are parts of the Senate GOP plan his caucus has supported, such as freezing the EITC, but members would have to take a closer look on anything that would roll back credits under the MBT.

Elsenheimer acknowledged tackling the MBT surcharge is critical, but said a global solution to the budget still needs to be presented.

“There are still some issues to be ironed out and we recognize that,” he said.

The Senate GOP proposal would raise some $300 million total. The phase-out of the surcharge would also begin this year and cost about $159 million.

It would raise the funds by freezing the Earned Income Tax Credit, raising $160 million; reducing the state’s film credit, raising $50 million; raising $24.5 million through a tax amnesty; along with more than $40 million in other revenue sources.

The EITC changes, in HB 4514 , passed on a 20-13 vote, but failed to get immediate effect. The measure delays the expansion in the EITC by several years, but does not permanently freeze the EITC at its current level.

The changes to the MBT were in SB 838 , which passed on a 19-14 vote, the exact minimum number of votes needed.

The changes in the bill to the state’s film credit scale the credit back but do not cap it. In addition, it strengthened requirements for film production companies to employ Michigan residents and expanded the credit for building film infrastructure.

The one controversial moment came when the Senate voted to strip a reduction in research and development credits from the package. Sen. Nancy Cassis (R-Novi) said that would benefit manufacturers who had been gaming the state’s tax system while laying off thousands of workers. But she was the only vote against stripping the proposal out of the bill.

Republican sources said they were unsure in the end if the proposal would be accepted by Granholm and House Democrats. But Bishop insisted with the action, and the passage of the K-12 School Aid budget, that work on the 2009-10 budget was done (see related story).

He also said he hoped to meet with Granholm to discuss her concerns with the budgets not yet sent to her, in hopes of forestalling possible vetoes.

The administration issued no statements Thursday night about the Senate GOP proposal.

But Senate Minority Leader Mike Prusi (D-Ishpeming) released a statement saying his caucus opposed the proposal to take more money from workers and give it to business groups.

The Senate GOP added “insult to injury by slashing critical services for struggling families and then taking away the modest tax breaks we’ve promised them,” he said.

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