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Thursday, February 09, 2006

If Single Business Tax Repealed, Where Will Lost Revenue Come From?

PONTIAC - Oakland County Executive Brooks Patterson says repeal of the state's Single Business Tax is a critical issue that voters, rather than Lansing lawmakers, must decide. The biggest concern is how would the lost $1.8 billion in revenue be replaced?

In an interview with Gongwer News Service, Patterson said he is looking at several potential options to replace most of the money - perhaps $1.3 billion - but added any replacement decisions will have to be made by the Legislature. He has given himself a tight timeframe to get the petition underway, needing first to raise $800,000 in pledges in the next 10 days to underwrite the cost of the effort, or he will not go down that road, he told Gongwer.

House Speaker Craig DeRoche (R-Novi) said he's "with the county executive." Advancing the sunset date of the SBT to October 1, 2007 is "acceptable," he said, and something the Legislature could accomplish.

DeRoche said his office is looking over the other 49 states' tax codes to ensure that the SBT replacement is "One of the best tax codes and amount nationally." He said whatever tax replaces the SBT would bring in revenue to the state at a lower level than it currently does.

Senate Majority Leader Ken Sikkema (R-Wyoming) said he welcomed the engagement, but said the changes can be made by the legislature.

"Most reasonable people think we have to have some kind of alternative,'' Sikkema said. "I'd just as soon do (the repeal) legislatively and save the expense of the election. The real question is what kind of replacement do we come up with?"

Michigan Gov. Jennifer Granholm, who insists that any business tax cuts be fully replaced with other revenue, said she did not know what Patterson was attempting, since he supported her SBT revision in 2005. She had not yet had a chance to talk to him, she said.

"I'm in favor of replacing the business tax with what makes Michigan more competitive," she said, but not in a way that requires either draconian budget cuts or forces the consumers to foot new taxes.

In fact, she said there is an ironic similarity in calls to eliminate the SBT and the K-16 school finance proposal in that one proposes eliminating revenues without identifying a replacement source and the other proposes spending increases without identifying a revenue source.

Lawmakers in the House see Patterson's proposal as spurring debate in the Legislature about a replacement system to the Single Business Tax. It follows a study of nearly two years by the Granholm administration of the tax which produced a $1 billion restructuring plan, but that was ditched by the Legislature in favor of a negotiated cut of $600 million over the next several years.

"It kind of puts another nail in the coffin of the SBT," said Rep. Fulton Sheen (R-Plainwell), chair of the House Tax Policy Committee. However, Sheen said getting rid of the SBT is only part of the package, and that lawmakers also have to look at getting rid of the personal property tax, which has either been scaled back or eliminated in other Midwestern states.

But while the minority vice chair of that committee, Rep. Steve Bieda (D-Warren), said observers will be keeping an eye on whether Mr. Patterson collects the $800,000 in pledges, he said it's going to be difficult to educate residents who don't see how eliminating the SBT would affect them. Bieda said it is more appropriate for the Legislature and the governor to continue debate and review the issue.

Patterson, who lamented the loss of businesses to other states, said there is "an absolute correlation" between the SBT and the state's ranking with the National Tax Foundation as having the worst tax climate in the country.

Patterson said he is open to a number of alternatives already on the table, such as a business license tax proposed by the Detroit Regional Chamber, as well as a broader sales tax to cover at least some services with the rate lowered to 5 percent from 6 percent.

He suggested looking at the top 10 states ranked for business hospitality and "look at what they have in place, see what their corporate tax structure is and extrapolate the best practices from all of them."

But he insisted that whatever is done must include an overall tax cut, to perhaps $1.3 billion in replacement revenue, something he said would leave the state with a management hole to address on the spending side. And in the long term, he said that would be spur more economic development that would more than make up for the lost revenue.

"We have to go after the emerging sectors," he said.

Patterson laid out his case for repeal in his annual State of the County speech Wednesday night.

The Michigan Chamber of Commerce is a long-standing critic of the tax and helped pass the current 2009 sunset date, but Tricia Kinley of the group said the devil will be in the details of whatever is created to replace the SBT. "We do want to see the details," she said. "The Michigan Chamber is right in the middle of a thorough review and analysis of other alternative ideas and looking at the pros and cons. That takes some time."

That means, she added, that Patterson's tight time frame to get support for his petition drive is too short for the Chamber to get behind it now. "It is better for people to be cautious. But we give Brooks a gold star for pushing the issue," she said.

The Michigan Manufacturers Association, which had generally backed the governor's restructuring proposal that favored its members, welcomed the renewed attention, but noted the risk of putting the question up to voter decision. He also said there is some appeal to striking down the tax summarily and forcing lawmakers to devise a replacement.

"There is no doubt the business community has been beating up the SBT for decade or more," he said. "Can the average citizen accept the unknown (on what replaces it)? For businesses, anything's better than what we have."

Another business consortium, which is supporting the drive, said anything short of Patterson's proposal spells a continuing economic slide for the state. "This is the CPR that Michigan needs right now to get back on track with the rest of the nation and start breathing again. If taking this issue to the polls will help initiate the repeal of the SBT, we are 100 percent behind that effort," Ed Deeb, president of Michigan Business and Professional Association/Michigan Food and Beverage Association, said.

The Small Business Association of Michigan also gave the drive a thumbs up. Rob Fowler, the group's president, said it is continuing to work for a new tax structure to put in place when the SBT expires under current law, but pledged support for the ballot repeal proposal if it makes it to the ballot. "Eliminating the SBT is only one element of a vitally needed fundamental tax reform," Fowler said.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com

Author: Staff Writer
Source: Gongwer News Service

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