LANSING (AP) – Michigan would lose at least $125 million a year in tax revenues if lawmakers approve President Bush’s latest economic stimulus package, according to a report released yesterday by the Center on Budget and Policy Priorities.
“One of the most astounding features of the plan … is that there is no fiscal relief for the states,” said the report’s author, budget analyst Iris Lav.
Michigan Republican Party Chairman Rusty Hills defended Bush’s plan, saying the center’s analysis is flawed because it doesn’t consider whether the plan will create more jobs.
“It’s going to help create jobs, and the more people that go to work, the more the state will earn in tax revenues,” he said. “There’s benefits for everybody across the board. This is the right tonic at the right time.”
The Washington-based Center on Budget and Policy Priorities is liberal-leaning but has a reputation for evenhanded analysis.
Bush’s proposal, announced Tuesday, would accelerate tax cuts scheduled for 2004 and 2006 and eliminate the tax on corporate dividend payments.
Lav said the dividend cut would be the costliest measure for states, reducing revenue by $4.5 billion per year to 43 states.
According to Lav’s analysis, Michigan would have the ninth-highest amount of revenue losses, behind California, New York, Ohio, Massachusetts, North Carolina, Virginia, Pennsylvania and Illinois.
Michigan would be better off than some states because it wouldn’t be affected by Bush’s plan to increase the amount that small businesses can deduct for business investments. California and Michigan have their own business tax systems that don’t work in tandem with the federal system.
Lav said states would be better served by a Democratic proposal that would give $31 billion directly to state governments. States already are facing budget deficits of around $50 billion in 2003, she said. Further cuts could lead to more layoffs, lower benefit payments and lower reimbursement rates for services.
“The best thing the federal government can do right now is supply some aid and avoid putting costs on states,” she said.
Lav said one option discussed in a White House conference call with governors Tuesday night was that states could continue to tax dividends independently.
But she said that option could be short-lived, because companies may want to stop producing the forms required for dividend taxes if the federal government doesn’t need them.
Democratic Gov. Jennifer Granholm hasn’t yet decided how Michigan would respond if Bush’s tax plan is approved. Michigan is facing an estimated deficit of up to $2 billion in the next fiscal year, which begins Oct. 1.
Granholm said Tuesday that she hoped Bush’s plan would help states, not hurt them.
“My advice to the president would be to provide assistance to the states, which are facing whopping budget deficits, the worst since World War II,” she said.
Dettloff said it wouldn’t be the first time Bush’s tax policies have cut state revenues.
The 2001 phase-out of the estate tax cost, for example, cost Michigan $12 million in 2002 and could cost the state $67 million in fiscal 2003 and $100 million in fiscal 2004, according to estimates by the National Conference of State Legislatures and the Senate Fiscal Agency.
Granholm tried to join the White House conference call Tuesday night but had technical problems, Dettloff said. She got a briefing yesterday morning from the Democratic Governors’ Association.