Are new taxes steam-rolling at us in Michigan?

Friday, February 02, 2007
Report may pave way for tax hike
Mark Hornbeck / Detroit News Lansing Bureau

LANSING -- A blue-ribbon panel will lay the groundwork for a tax hike, without specifying which tax to raise, when it releases its report on the state budget to Gov. Jennifer Granholm today.

Tom Clay, a consultant to the group and director of state affairs for the nonpartisan Citizens Research Council of Michigan, said Thursday the report stops short of calling for a tax on services to shore up the budget. But Clay said the report notes that "services is the one area of the economy where the state tax system is completely disconnected from the economy."

Michigan taxes goods -- other than food and prescription drugs. But it doesn't tax services such as lawn care, movie tickets and haircuts.

Clay provided budget and revenue data to Granholm's group and read all of its report drafts. His assessment of its findings was confirmed by another person familiar with the 19-page report, who asked not to be named.

Report discourages tax cut

The 12-member committee was headed by ex-Govs. James Blanchard and William Milliken and included ex-lawmakers and former budget and treasury officials. The current shortfall is expected to exceed $800 million.

Granholm is under pressure to develop a strategy quickly: Her State of the State address is Tuesday, and her 2007-08 budget plan is due on lawmakers' desks Thursday.

A business tax cut, proposed by business groups and some Republican lawmakers, is not the way to go, the report says. The $1.9 billion Single Business Tax will be eliminated at the end of this year. Granholm has said the replacement tax must generate the same amount of revenue. But Senate Republicans last week proposed a $290 million business tax cut.

"The group is in agreement that cutting taxes at this stage is not a good idea," Clay said. "The evidence doesn't support it."

The advisory panel, appointed last month, was widely seen as a way to provide cover for Granholm to raise taxes. This report, which is certain to draw criticism from some Republican leaders and anti-tax groups, is not likely to dispel that notion.

Statistics cited in the report show businesses pay a smaller share of state and local taxes than they did 10 to 15 years ago and that Michigan's business tax burden is nationally competitive, Clay said.

He said the report doesn't specifically call for the Single Business Tax replacement to be "revenue-neutral, but it gives the sense that full replacement (of the $1.9 billion in annual revenue) is the right thing to do."

"Did you expect anything less from that group? That has been their solution all along," Rose Bogaert, chair of the anti-tax Wayne County Taxpayers Association, said of the panel's apparent support for tax hikes and the replacement of the SBT. "There is no excuse, given the state of the economy, for these people to do such an unconscionable thing."

Bogaert called a possible tax on services "regressive" and said it would further push young professionals out of the state.

"The solution for bringing people into Michigan is not to tax them more," she said.

Trimmer government urged

The panel's document also calls for streamlining government but does not propose detailed budget cuts, except in the area of corrections.

"It says we should reduce our prison population and treat nonviolent criminals more like neighboring states," Clay said. Michigan's prison incarceration rate per capita is 40 percent higher than other Great Lakes states, according to a report by the Center for Michigan, an Ann Arbor-based think tank.

"It lays the groundwork for a careful examination of state priorities, potential cuts in some areas, doing better in some areas," according to Clay.

The report, co-authored by Craig Ruff and Bill Rustem of Lansing-based Public Sector Consultants Inc., provides a history of how Michigan got into this budget predicament and concludes there are no more short-term fixes.

Discussions in the state capital in recent weeks also have focused on replacing the flat-rate income tax with a graduated tax; raising the flat income tax rate; increasing the gas tax; substantial across-the-board spending cuts; and selling state assets, such as the lottery or state parks.

"These bipartisan, cooperative participants are very concerned about the state," Clay said of the advisory panel. "Without question, they believe we have a real mess on our hands."

Joe Menard contributed to this report. You can reach Mark Hornbeck at (313) 222-2470 or mailto://mhornbeck@detnews.com.