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As budget process drags on, lawmakers weigh businesses and state programs

BY NICOLE ABER
Daily Staff Reporter
Published October 11, 2009

State legislators in Lansing have a lot on their plates as they search for an elixir to the state’s budget gap before the end of the month.

Amid this treacherous rush, lawmakers are forced to juggle the competing demands of a business community looking to attract more companies to a state with record levels of unemployment with an increasingly jobless public who rely on state programs like welfare and the Michigan Promise Scholarship to get by.

Since missing the Oct. 1 deadline and narrowly avoiding a long-term government shutdown by passing an interim budget, lawmakers have been working late into the night in the past few weeks trying to get a balanced budget in place before the end of the month.

One of the highly contested portions of these budget discussions will affect all Michiganders: taxes.

The Democratic-controlled House of Representatives and the Republican-controlled Senate both passed various bills last week that involve increasing taxes and repealing tax credits in order to fill the holes left in the pending budget for the 2010 fiscal year.

In general, the Republican-controlled Senate has favored cutting state programs as a solution, while the Democrat-controlled House is looking for ways to increase revenues, like raising certain taxes.

Last week, the House passed three revenue-raising bills with provisions to increase taxes on physicians by 3 percent, freeze the personal income tax exemption and eliminate credits that allow companies to avoid the Michigan Business Tax.

Rep. George Cushingberry Jr. (D–Detroit), chair of the House Appropriations Committee introduced one of these bills, House Bill 5384. Cushingberry said that by making the Michigan Business Tax applicable to more companies, the bill would raise funds for programs like the Michigan Promise Scholarship, which would be cut under the current proposed budget.

In an interview, Cushingberry said that in this situation, he disagrees with a common notion in politics and economics that by increasing taxes on businesses, lawmakers hurt the state’s appeal to companies. Cushingberry said that cutting Michigan Business Tax credits wouldn’t be a hindrance to business in the state, as less than 10 percent of a business’s decision to open its doors is based on tax credits.

“That is one of the minimal factors,” he said. "It’s a spurious argument.”

Liz Boyd, press secretary for Gov. Jennifer Granholm, said Granholm supports the bill, which would generate more than $116 million in revenue for important state-funded programs.

“Gov. Granholm believes that Michigan’s future demands a budget that helps us diversify our economy, attract new investments and creates new jobs,” Boyd said. “Michigan’s future demands a budget that keeps police officers and firefighters on the job and on our streets, and that helps our children afford a college education and protects people at risk during these tough economic times.”

But many GOP lawmakers, like Rep. Dave Agema (R–Grandville) disagree.

Agema said the Michigan Business Tax is both a deterrent for businesses looking to open shop in the state and a strain on existing businesses. Taxing during a recession only exacerbates poor economic conditions, he added.

“The Michigan Business Tax is one of the most onerous taxes in any state,” Agema said. “Businesses need to come here and hire people. That’s how we’re going to get our way out of this recession. And that’s going to have to be a profitable place for businesses to come, both in regulation and in taxes. Right now we’re not that state.”

The bill was passed in the form of a shell bill, according to Rep. Bill Rogers (R–Brighton). This practice allows lawmakers to get a bill passed while postponing the creation of specific details, Rogers said.

“(The) shell bill is a lot of positioning by both parties to get ultimate goals, which in many cases, we as legislators, aren’t privy to,” Rogers said.

Rod Byrne, former chair of the Ann Arbor Area Chamber of Commerce, said C-corporations who file under the fiscal year, which includes many manufacturers, would be most affected by a decrease in tax credits under the Michigan Business Tax.

Though the clear top priority of state legislators is to create a balanced budget, they also need to think about the state’s long-term economic goals, Byrne said.

“Right now the goal seems to be very focused on balancing the budget but if you see economic growth as a means of long-term balancing budgets, you need to find ways to get businesses to come to the state of Michigan,” Byrne said. “Having a high or difficult-to-manage or difficult-to-plan-for business tax is not a way to do that.”

Businesses, initially discouraged by the proposal to eliminate the Michigan Business Tax credit, were greeted with more optimistic news for business taxes late Thursday night in the legislature’s other chamber. The state Senate passed a bill close to midnight that created a plan to generate funds for the K-12 budget, while also getting rid of the Michigan Business Tax surcharge.

This proposed repeal of the 22-percent surcharge will greatly help struggling businesses in the state, according to Jim Holcomb, vice president of Business Advocacy and associate general counsel for the Michigan Chamber of Commerce.

“(It) will have a great impact on economic growth in the state of Michigan,” Holcomb said. “(It will) help provide jobs, help reduce (the) unemployment rate … (It) really took a positive step for Michigan.”

The package of bills passed in the Senate will modify some of the credits under the Michigan Business Tax, which will create additional revenue to allow for the phase-out of the surcharge over three years, Holcomb said.

The phasing out of the Michigan Business Tax surcharge would cost the state about $159 million, according to Rep. Joan Bauer (D–Lansing).

Mike Johnston, vice president for Government Affairs for the Michigan Manufacturers Association, said the various tax increases in the bill would offset the decrease in revenue from the repeal of the surcharge.

But Johnston said Michigan businesses, especially manufacturers — which make up the largest sector of the state’s economy — “truly appreciate” the proposed removal of the surcharge.

Boyd said Granholm’s proposed budget includes the removal of the surcharge.

“The Governor has proposed a balanced budget that funds our priorities and she has also proposed a solution for phasing out the MBT surcharge, which is a priority for the business community,” Boyd said.

Michigan was ranked No. 49 on Forbes’ 2009 list of “The Best States for Business” and holds the No. 50 spot for both the economic climate and growth prospects ranks.

Holcomb said the Michigan Business Tax could use clarification on a number of technical points that will affect business owners.

“If we get this active, it will repeal the surcharge but there still are other issues with many businesses across the state,” Holcomb said. “It’s certainly far from a perfect tax.”

The Senate bill now moves to the House for deliberation.

According to Bauer, the House has “a number of concerns” with the proposal, including the suspension of the earned income tax credit, which helps the working poor.

“There has to be more study of this so we think that this way to raise revenue makes sense for Michigan,” Bauer said.