“The power to tax involves the power to destroy.”
That was the determination of Chief Justice John Marshall in the landmark 1819 Supreme Court decision, McCulloch v Maryland. Marshall refused to grant state governments the right to tax federal institutions because that would give the states the power to damage the federal government by taxing it into bankruptcy. Almost 200 years later, the federal government is still immune from state taxes, but a new victim is facing possible bankruptcy at the hands of the state.
The perpetrator is the Michigan state government, the victim is small business in our state and the method is the newly created 6 percent tax on services. Economically speaking, Michigan’s darkest hour has already arrived, but this new tax could be the last nail in the state’s coffin. Small businesses cannot possibly afford such an assault. The 6 percent tax on services will cripple local business at a time when they are our only hope to rejuvenate Michigan’s staggering economy.
Perhaps even more ridiculous than the tax itself is the list of its intended targets. Anyone requiring the services of a carpet cleaner, janitor, landscaper or fortune-teller will feel the pain. That’s bad enough, but the story of the service tax gets downright terrifying when the full extent of the lobbyist influence in the process is examined.
The Detroit News reported last week that state Rep. Steve Bieda (D-Warren) acknowledged that lobbyists played a key role in determining which services would be taxed. Apparently, the state is not only trying to kill small business, but it is also being bribed into exempting the businesses that can afford lobbyists. It should be obvious that the businesses that can afford lobbyists are the ones best able to afford the service tax, and yet their weaker competition is being hit with it instead.
The state government has proved that it can be bought by the highest bidder. As The Detroit News’s report stated: “Bieda, who said he did not draw up the list of newly taxed services, said some of the services taxed do have strong lobbyists.” Of special interest here is Bieda’s determination to avoid taking any credit for the list of taxed services: Even legislators realize how unfair and ridiculous such a list is.
Senate Majority Leader Mike Bishop (R-Rochester) made sure to keep tickets for sporting events off the list, because he does not consider them to be luxury items. Or maybe it’s because the Palace of Auburn Hills happens to fall in his district. These legislators’ statements and actions make it evident that even they know how unfair the list is. Yet it was signed into law anyway. Now small businesses that could not afford to have their views represented by lobbyists will face a tax that they also cannot afford.
With such a tax in place, small businesses have only two options. They can hold their own prices steady and hope for the best, or they can lower their prices to compensate for the tax. If they keep their prices the same, the overall cost to the customer will rise because of the tax. This decision carries a substantial risk of losing customers, especially now that Michigan consumers have so little extra cash to spend.
Across the state, citizens are taking pay cuts at their jobs, facing increasing gas prices and surviving an abysmal job market (Michigan’s unemployment rate is 7.2 percent, the highest in the nation). When money is tight, people are much less likely to spend it on nonessential services, especially if these services increase in price. But if small businesses choose to lower their prices to keep the overall price the same for the customer, they will automatically be suffering an unaffordable loss by taking in a smaller profit. This lose-lose situation has painted a bleak future for Michigan’s small businesses.
Massive losses for small businesses result in massive layoffs and increasing unemployment. This causes the state government to create new taxes in order to sustain a growing populace that is out of work. New taxes ruin more businesses, as the lobbyists shut out the voices from our suffering economy. Eventually, everyone who has not abandoned Michigan will be taxed into joblessness. This self-sustaining cycle must be prevented before it drags our struggling state into total economic oblivion.
Robert Soave can be reached at email@example.com.