Muskegon reacts to the governor's reform of the Michigan business tax system
MUSKEGON — Gov. Rick Snyder says that state government should not “pick winners and losers,” but his Thursday budget message appears to have made small businesses winners.
The new Republican governor's proposed reform of Michigan's business tax system eliminates the general Michigan Business Tax in favor of a 6 percent state income tax on large corporations. The move would give businesses an overall $1.8 billion tax break and take the Michigan Business Tax filing onus off of small businesses, according to an analysis of the proposal.
The message was welcomed by Muskegon-area small business owners and the organizations that support them and economic development in the community.
In a recent survey, 61 percent of the membership of the Muskegon Area Chamber of Commerce said a major issue facing local businesses is the need to realign business taxes in Michigan.
“It is not surprising that the governor addressed this issue,” Muskegon chamber President Cindy Larsen said.
The bold proposal is all about job creation, the governor said. The governor was asked after his Lansing budget presentation to state legislators what the outcome of his proposed budget would be. His answer was direct.
“We will watch jobs being created,” Snyder said. “It will become known that this is a state you want to do business in. We'll be a role model for the rest of the country … Michigan is the place to come to do business.”
Longtime state government observer M.L. “Mickey” Knight said the Snyder message is unlike any he has heard as a state representative for Muskegon or as a lobbyist, in part representing the city of Muskegon and Muskegon County.
“This fits with reinventing Michigan,” Knight said after coming out of the joint Senate and House Appropriations Committee meeting with the governor. “These are substantial changes to the business tax structure. This is probably the boldest message I've ever heard from a governor.”
The changes proposed by Snyder have left local legislators reeling from their significance and sheer breadth.
“Realize that this is just the beginning and we have to digest this,” state Sen. Goeff Hansen, R-Hart, said from Lansing. “We have to take time to look at all of the details. There are a lot of moving parts … there is nothing set in stone.
“But I like that he is looking long term and that we are done with short-term fixes,” said Hansen, who said he can't agree with every part of the governor's tax and budget proposals.
State Rep. Marcia Hovey-Wright, D-Muskegon, said she is not sold on the Snyder budget and tax plan.
“Yes, we need to make changes in this state, but this budget has gone way too far,” Hovey-Wright said of budget cuts in education, elimination of the earned income tax credit and taxation of pension income. “The winners are business, but the losers are seniors, the working poor and kids. That is not shared sacrifice.”
The Michigan Business Tax — the number one target of Republican campaigns for both governor and the Michigan Legislature in 2010 — is “double” taxation, according to Snyder. After paying MBT taxes on business operations, a small business owner then has paid an additional 4.35 percent on their personal income from the business — pushing the actual tax rate to more than 10 percent, he said.
“To ask people who create jobs to pay 10 percent … that's got to go away,” Snyder said.
The business tax proposals are not a surprise, said Ed Garner, president of Muskegon Area First — the local economic development agency.
“One of the issues that needed to be tackled is the business tax system,” Garner said. “Business needs to know what taxes will be and make sure they are simplified. But the governor talked about this in his campaign.”
Along with eliminating the Michigan Business Tax to be replaced with a corporate income tax, Snyder in the strongest of terms signaled an end to tax credits and special exemptions that he said already total $2 billion in lost revenue through 2015. However, current tax credits such as the $112.6 million special battery tax credit for the fortu PowerCell battery plant planned for Muskegon Township will continue.
“Let's stop the tax credits,” the governor said. “The only reason they are in the tax code is that someone had more political power.”
In the future, tax credits should become direct appropriations from the state. If businesses and communities can make the case for such help, they should approach the appropriations process directly to have the state issue them a check, Snyder said.
For downtown Muskegon promoters, that should mean any extension of the low-tax Renaissance Zone will most likely be opposed by the governor's Michigan Economic Development Corp. The downtown RenZone tax advantages are due to expire in the next four years.
Hovey-Wright said that Muskegon has advanced economically through tax credits such as for the battery plant and downtown redevelopment.
“Eliminating (the credits) seems like job killing to me … I might be wrong but I don't think so,” Hovey-Wright said.
Snyder's head of the MEDC sent out a message to local economic development agencies Thursday afternoon.
“A lean and efficient state government that optimizes the overall business climate in the state by addressing all needs equally is more likely to positively influence the economy and create jobs than overemphasis on one tool such as tax credits,” MEDC chief Michael Finney wrote.