LANSING – Though he acknowledged it would be impossible to say how many, Governor Rick Snyder said the changes to the tax code he signed Wednesday would create new work in the state.
Snyder signed the legislation (HB 4361 , PA 38; HB 4362 , PA 39; HB 4479 , PA 40; HB 4480 , PA 41; HB 4481 , PA 42; HB 4482 , PA 43; HB 4483 , PA 44; HB 4484 , PA 45) that replaces the Michigan Business Tax with a new 6 percent profits tax only on C-corporations and that extends the state’s income tax to those pension income for those born in 1946 and afterward.
The bill also eliminates many of the deductions and credits, particularly for business, making the change “simple, fair and efficient,” Snyder said.
“It will create jobs. I’m confident of that,” Snyder said on signing the legislation.
But he said the tax changes were part of a package that included the budgets, which are expected on his desk shortly, and other changes to the business environment. “You can’t isolate jobs being created to one single thing,” he said.
In one of his last campaign ads last year, Snyder, speaking to the camera, discussed how half the jobs lost in the nation had come from Michigan “How did that happen? Politicians gave us the worst business tax in the country and regulations that made creating jobs almost impossible. I’ve created thousands of jobs. We’ll dump that tax, then the regulations. And jobs will come back.”
The new business tax is a stark contrast to the tax it replaced, he said Wednesday. “Not only was it unfair, it was a dumb tax,” he said. “We haven’t had a rational tax in the state for years.”
In particular, he said the old system, both the MBT and the Single Business Tax that preceded it, required many business owners to pay tax both on the money as it flowed into their business and then again as they took it as personal income.
Owners of partnerships, S-corporations and other simpler business entities will now pay only personal income tax.
“This is the sort of action others will take note of,” said Lt. Governor Brian Calley. “Around the world, around the country and, more importantly, around the state.”
Calley said the new system was aimed as much at helping those businesses already in the state to grow as it is attracting new businesses to the state.
Michigan Economic Development Corporation CEO Michael Finney said the loss of the tax credits as a tool to attract new business would not hamper business attraction efforts.
Snyder said the tax on pensions, which phases in as new people begin collecting pensions, is also fair because the old system put the tax burden on people the state was trying to attract.
“We were going to push our tax burden onto our young people,” he said.
Snyder said there were flaws in the new tax system, but he said he expected it to be in place for some time, unlike the MBT.
But it will not be the last tax change coming. He said he planned to address the personal property tax in the fall, but had to work with local governments to be sure the solution did not overly affect their coffers.
He also dismissed concerns that Democrats would be able to carry the message that the plan shifted taxes from businesses to seniors to victory in 2012.
“I think people are understanding this,” he said. “Whenever there’s change, it’s easy to find things people don’t like.”
But the response to the signing ran about the same as it had while the plan moved through the Legislature: business groups applauded it and liberal groups decried it.
“This is literally a once-in-a-generation step forward toward creating a business climate that encourages business owners to grow their companies, create jobs and revitalize their communities,” said Rob Fowler, president of the Small Business Association of Michigan.
Business Leaders for Michigan said the signing signaled the start of the state’s turnaround. “The business tax changes are the single biggest improvement to Michigan’s job climate in almost two decades,” said Business Leaders President Doug Rothwell. “The turnaround isn’t complete, but we’re on our way!”
“This is a remarkable improvement from where we were at the outset of this legislative session,” said MCC President Paul Long. “While the EITC has been significantly reduced from its current twenty percent level, the fact that the credit has been preserved – in light of limited state resources – is a testament to the Legislature’s appreciation for the working poor of this state.”
The new law allows residents eligible for the federal EITC to claim a credit against their state income tax equal to 6 percent of their federal credit.
But Progress Michigan said the new law was merely a tax shift. “Thanks to this tax debacle, Michigan families on Main Street will be subsidizing Wall Street and greedy insurance company profits for years to come,” said Leigh Fifelski, communications director of Progress Michigan. “Governor Rick Snyder’s tax sham will only hurt ordinary Michigan citizens, kids and seniors.”
“At a time when Michigan families have made more than their fair share of sacrifices in these tough times, this dangerous new tax plan will force ordinary families and seniors to make even more sacrifices while CEOs get a free ride,” said Erin Knott, Michigan Citizen Action deputy director. “That’s not fair, and the people will not sit quietly while this tax sends our middle-class down the drain.”
The groups argued the plan would provide $1 billion in tax benefits to businesses, but would increase taxes on retirees by $300 million.
Zack Pohl, spokesperson for the We Are the People coalition of liberal organizations, said the group would be using the issue in upcoming election campaigns. “The people of Michigan have sent a message at countless rallies, town hall meetings and community events that they expect Lansing politicians to stop the power struggles and start working together to create jobs,” he said. “Instead, state politicians raised taxes on seniors and working families to pay for a huge corporate tax giveaway with no guarantee of job creation. The politicians didn’t listen, and now the people are ready to take this fight back to their home districts to defend working and middle class families.”
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