Wednesday, August 02, 2006

Replacing the SBT

Oakland County executive L. Brooks Patterson was successful in his drive to put the issue on the ballot. This means Michiganders will be able to vote to eliminate this often derided tax. Furthermore should the Republican-dominated legislature opt to vote in advance on its elimination, it will be eliminated by the end of 2007 (currently it is set to expire by the end of 2009) and there is nothing that Governor Jennifer Granholm and her veto pen can do about it. No one in Michigan likes the SBT, Governor Granholm included. But, it is important to remember it is a major source of state revenue and as such it would be inappropriate to eliminate it without having the funding put in place from an alternate source. Furthermore a key part of this debate is this, Michigan's business climate is far from as dire as Dick DeVos or Republicans in Lansing like to proport it to be.

Naturally many things go into the decision of where to locate your business. Convienience, availability of resources (both human or natural), and so on. This is why agriculture is a big deal in Nebraska and not Alaska or why major investment firms are located on Wall Street and not in Winter Haven. Republicans though would have you believe that the only concern is taxation. Yet does this seem to match the facts? Let's see...

worst five states to do business in are: New York, New Jersey, Rhode Island, Ohio and Vermont (in that order). Yet, if we look at the state gross state product we see that these states don't seem to be hurting for economic activity as New York (#2), New Jersey (#8) and Ohio (#7) are all doing relatively well. While Rhode Island and Vermont are 44 and 50 respectively they also are far smaller than their counterparts and in per capita rank a much better 22 and 36 respectively.

So we should see that the best five states are doing wonderfully shouldn't we? But Wyoming, South Dakota, Alaska, Florida and Nevada are a mixed bag. Wyoming (#48), South Dakota (#46), Alaska (#45) and Nevada (#31) are not impressive. Yet the four states other than Florida do all perform admirably in per capita, they are tiny states for the most part.

What this goes to show is it is more than just a tax climate that encourages investment. Otherwise we would see far more
Fortune 500 companies in Wyoming (zero) or South Dakota (zero) than we do in New York (54) or New Jersey (21). Despite these hard facts, the bluster still exists that Michigan's business climate is so horrid that we are stuck in (those infamous three words) a "single state recession".

In an article in the Wall Street Journal from Dec. 12, 2005 they declared: "the current U.S. expansion has lifted the fortunes of nearly every state in the country, with the notable exception of Michigan, which is busy reclaiming its 1970s's title as home of the rust belt. Sad to say, politicians in both parties are only making things worse." The line I took away from this piece though (which also was critical of Governor Granholm, though I disagreed with their assessment) is this: "but if you think the Republicans in Washington have bumbled things, take a look at the muddle in Michigan." The problem is that Republicans want to rid themselves of the SBT thinking it will be some cure-all for Michigan's economic woes. Republicans are clear in their distaste for the SBT:

Dick DeVos: "In order to turn the economy around we need to send a clear message that we are willing to work with job providers not penalize them with a job-killing tax... In a DeVos administration, we will not shift the burden to individual taxpayers, instead, we will make the decisions necessary to reduce wasteful spending and give businesses the tools they need to grow and expand so our residents can get back to work,"
source . Thank you Dick for your specific plans on replacement.

Leon Drolet (R - Clinton Twp): "The SBT is a known job-killer with a trail of company corpses,” Drolet said. “I have listened to hundreds of witnesses around the state and their testimony is consistent – the SBT has left a wake of economic tragedy. We, the representatives of the people of the state of Michigan find the SBT tax guilty of being the worst tax in the nation and sentence it to death on Sept. 30, 2007... Too many of our best and brightest are leaving Michigan for jobs and opportunities in other states. By eliminating the SBT, and creating one of the best business climates in America, we will attract the entrepreneurs and investment we need to create thousands of new jobs for Michigan workers,"
source . Again we see a vast amount of specifics on replacement.

Yet when it comes to replacement their pronouncements enter the realm of ambiguity:

Dick DeVos as reported in the Detroit News: "GOP gubernatorial candidate Dick DeVos supports the SBT repeal, but has not offered many details on what a replacement tax should look like and how much it should raise."

Craig DeRoche (R - Novi) again from the Detroit News: " "We want to send a message to businesses that we are serious about this," DeRoche said. DeRoche said replacing the SBT revenue is a complex process and that lawmakers will be thorough in their review."

I appreciate the complexity with replacing a tax , yet I have only heard one solution to replacing the SBT that makes any sense at all. One that has a clear message (we want to remove the tax), one that has a clear concept of budgeting (need to provide alternate funding) and one that Michigan voters should find sensible after John Engler's decade of overspending: Governor Jennifer Granholm's opinion on the SBT is the correct one (also care of the Detroit News): "The governor believes lawmakers should not vote to eliminate the SBT unless they also guarantee that individual taxpayers won't end up footing the bill in higher taxes and devastating cuts to health care, education and public safety," Granholm spokeswoman Liz Boyd said."

What a novel idea, cutting or eliminating taxes after accounting for potential budget problems. I wish President Reagan understood that. I hope Michigan Republicans do too before we have another fiscal mess on our hands. The Republican philosophy of the past has been as follows: making tax cuts forces us into making cost-cutting moves. It doesn't work that way, we need to make decisions regarding our budgets first and then find funding or seeing how much taxation we can eliminate. Regardless, cutting taxes isn't everything. Balancing budgets though is essential to any government and Michigan is no different.


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