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Frenzy to cut taxes permeates Capitol

Published October 31, 2005

LANSING (AP) - Regardless of whether the latest plans to cut business taxes are good or bad, they raise the question - is this any way to decide policy?

This past week alone, Senate Republicans unveiled a plan that cut business taxes by a limited amount over four years while putting in place a cap on future spending.

Then, in a sudden flip, House Republicans abandoned an already-passed proposal to sell off part of the state's tobacco settlement to raise $1 billion to invest in new and existing high-tech businesses, and said most of the money should be used instead to pay for a business tax cut. They also walked away from their own business tax cut plan they'd already adopted.

It's clear from the flurry of announcements that everyone from the Republicans who lead the House and Senate to the Democratic governor and business leaders is desperate for something to pass.

East Lansing economist Robert Kleine, a former director of the state Office of Revenue and Tax Analysis who has been through past business slumps, says ideas are being floated at the Capitol willy-nilly.

"This is always what happens. It tends to result in some ill-advised policies," he says. "You try to respond - with something that's not going to be that effective, just to show the public you're doing something."

Right now, lawmakers and administration officials are flustered, with some downright angry about not being consulted over the latest plans.

Republicans seem determined not to give Democratic Gov. Jennifer Granholm any victories she can run on during her re-election campaign next year. Meanwhile, Granholm is sniping at GOP leaders for not passing tax cut or investment bills, ignoring the fact that months of talks have not led to an economic recovery plan that can get both sides on board.

Several economists say Republican House Speaker Craig DeRoche's latest plan has several flaws, including the fact that it may not promise enough tax relief to keep companies here that can get bigger tax breaks in other states. But it does meet several goals:

n It promises an immediate cut, something Granholm proposed with her own plan to cut the single business tax by more than 35 percent on Jan. 1. The latest plan offers a 10 percent cut over four years, starting with a 5 percent cut on Jan. 1. The other 5 percent cut would come in 2008.

n It avoids requiring about 22,000 businesses - including insurance companies that would be hit with higher premium payments - to pay more to cover the cost of the cuts. Republicans didn't want to cut taxes for some businesses but raise them on others, as Granholm had proposed.

n It pays for itself, at least for three years, by selling off $700 million of the state's future tobacco settlement. The governor and GOP Senate Majority Leader Ken Sikkema didn't want a business tax cut to force less spending on education or health care for the poor.

n It still sets aside $300 million from selling part of the tobacco settlement to invest in high-tech businesses that are starting up or expanding in the state. Granholm had wanted $2 billion, but would have had to ask the voters to approve the sale of bonds; the House and Senate already had agreed to use $1 billion from the tobacco settlement money for the investment fund. It's not clear if Granholm or the Senate will agree to less than $1 billion, but Granholm has said she doesn't want to spend the tobacco settlement on tax cuts.

 


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