Lawmakers poised to slash business tax

Published January 10, 2006

LANSING (AP) - Republican lawmakers are poised to pass legislation slicing state taxes in half for 32,000 small businesses by month's end, a move aimed at expanding tax relief beyond the state's struggling manufacturing sector.

House Speaker Craig DeRoche of Novi and Senate Majority Leader Ken Sikkema of Wyoming will announce the legislation today, along with a plan to tuck leftover money from the most recent budget year into savings.

But Democratic Gov. Jennifer Granholm may oppose the tax cut. She has said more tax relief isn't possible unless supporters find a way to pay for it without cutting more from the budget.

Under the GOP plan, small businesses that pay an alternative tax to the state's main business tax would see their rate drop immediately from 2 percent to 1 percent, according to details of the proposal provided yesterday to The Associated Press. The cut would save 32,000 businesses an average of $938 annually while costing the state budget about $30 million a year.

The first year of lost tax revenue would be covered by the recent state funding surplus. But Granholm is concerned because it appears Republicans don't plan to offset the cut with new revenue in future years, spokeswoman Liz Boyd said.

"If the tax cuts are ongoing, the way to pay for them has to be ongoing as well," she said.

Sikkema spokesman Ari Adler countered: "We are insisting on putting economic recovery first and the state budget second."

The GOP's proposal comes after a $600 million tax relief law took effect Jan. 1 primarily targeting automakers, suppliers and manufacturers. The personal property tax credit applies to everything from equipment to computers, but manufacturers shoulder the lion's share of the tax.

DeRoche spokesman Matt Resch said Michigan has more small businesses than it does large manufacturers and that small businesses are vital to the state's economic recovery.

"You can't just sit back and say, 'We passed something for manufacturers, let's cross our fingers and hopefully our job is done,'" Resch said.

Proposing to reduce the alternate small business tax rate is nothing new.

Granholm suggested cutting it from 2 percent to 1.2 percent as part of a broader business tax cut package unveiled nearly a year ago. But Republicans opposed the plan because it also would have raised the premiums tax on the insurance industry to make up for lost revenue.

In December, the Legislature sent Granholm a bill to drop the alternate rate by a tenth of a percentage point. That died when a larger tax deal between the governor and GOP leaders unraveled. Now, GOP lawmakers are proposing dropping the rate by a percentage point.

Keith Carey, a Lansing lobbyist for the National Federation of Independent Business, welcomed the newest plan.

"I wouldn't describe it as a momentous piece of tax relief," he said. "But it's very important. It's broad-based tax relief for small business. It doesn't pick winners and losers."