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Original article URL: http://bridgemi.com/2012/12/give-snyder-credit-for-trying-to-juggle-tax-changes/

Peter Luke:
Eye on the Capitol

Insights into the inside workings of Michigan's state government from a veteran newspaper correspondent.

Give Snyder credit for trying to juggle tax changes

After years of thinking up new ways to attract business with special deals, Michigan appears intent on getting out of the big money incentive game by engineering a tax code in which there is little left to abate.

Before it was repealed last year, lawmakers had created some 60 exemptions in a Michigan Business Tax that was just four years old. The new Corporate Income Tax that replaced it has 14 so far, according to the Treasury Department’s latest annual report on tax expenditures.

One of those MBT carve-outs that goes away with the tax was a $152 million credit equal to 35 percent of personal property taxes paid on industrial equipment that already wasn’t receiving local tax breaks courtesy of PA 198. Treasury estimates the value of the PA 198 breaks will total nearly $229 million this fiscal year.

Those breaks were necessary, in part, because, among Midwest states, Michigan was an outlier in assessing property taxes on the expensive machinery in large manufacturing plants prized by state and local economic development agencies.

Snyder, Calley seek property tax shift

But before the legislative year is out – if all goes according to plan — those breaks will become unnecessary. Because under Gov. Rick Snyder’s Senate-passed proposal now in the House, the relevant chunks of the PPT will be gone. Small business, industrial and commercial equipment with a combined taxable value of less than $40,000 would be exempt beginning in 2014. Equipment of far greater value used for industrial processing will be phased off the property tax rolls by 2022.

The main beneficiaries of what will be a $600 million annual reduction in tax liability will be a resurgent domestic auto industry that is driving Michigan’s economic rebound. The plan delivers on a promise of relief made during passage of a Corporate Income Tax that raised the tax bills of large manufacturers — both through the loss of that PPT credit mentioned above and a through a higher levy on profits. And it comes as manufacturing employment in Michigan pivots from steep decline to above average growth. From the spring of 2000 through the end of 2009, Michigan lost half its manufacturing jobs while the U.S. lost a third of them. Since then, manufacturing employment in Michigan is up 14 percent compared to 4 percent nationally.

The MBT repeal in 2011 was financed by a $1.5 billion increase in income taxes gained by targeting exemptions for individuals, such as on pension income.

The PPT repeal under a revised plan authored by Lt. Gov. Brian Calley is paid for through a new local assessment on business for police, fire and ambulance services. Non-emergency services in counties and municipalities that derive more than 2.5 percent of their revenue from personal property eligible for tax reduction would receive 80 percent reimbursement from the state’s use tax funds. The state School Aid Fund, also a recipient of PPT money, would be replenished as refundable business tax credits expected to exceed $568 million in fiscal 2014 expire.

Say what you want about Snyder’s approach, but at least the numbers add up. For years, lawmakers have added, not subtracted, from the tally of state tax expenditures that has grown by $11 billion in the past decade.

A tax debate that acknowledges choices have consequences would be a healthy addition to the State Capitol.

Peter Luke was a Lansing correspondent for Booth Newspapers for nearly 25 years, writing a weekly column for most of that time with a concentration on budget, tax and economic development policy issues. He is a graduate of Central Michigan University.

8 comments from Bridge readers.Add mine!

  1. Jeffrey L Salisbury

    “The PPT repeal under a revised plan authored by Lt. Gov. Brian Calley is paid for through a new local assessment on business for police, fire and ambulance services. Non-emergency services in counties and municipalities that derive more than 2.5 percent of their revenue from personal property eligible for tax reduction would receive 80 percent reimbursement from the state’s use tax funds. The state School Aid Fund, also a recipient of PPT money, would be replenished as refundable business tax credits expected to exceed $568 million in fiscal 2014 expire.

    Say what you want about Snyder’s approach, but at least the numbers add up.”

    Seriously?
    The “Snyder/Calley REPEAL of one tax is offset by the CREATION of another tax?
    So it turns out services still have to be paid for SOMEHOW?
    Did you have a straight-face when you wrote that?

  2. Roger Martin

    Peter,
    Your column is accurate, but only to a point. It’s what’s left out that must be noted. Here’s the sentence to which I’m referring:
    “Non-emergency services in counties and municipalities that derive more than 2.5 percent of their revenue from personal property eligible for tax reduction would receive 80 percent reimbursement from the state’s use tax funds.”
    WHAT A SECOND. That reimbursement only happens if Michigan voters pass a ballot question in 2014. It does not happen if they don’t. So the bottom line is this: under this proposal, the business tax cut is guaranteed, but the only way local communities and schools, whose funds are being taken by the Legislature, get this level of reimbursement is if voters pass the ballot question. We all saw how well the six questions on this year’s statewide ballot fared.

  3. David

    I would agree with the above comments. The first concern is that taxpayers will not pass a replacement tax (leaving Republicans room to say, “not my fault”) and even if they do, the Snyder/Calley proposal only replaces a portion of the revenue. Where is the rest of the money to come from to help struggling municipalities already trying to cope with continued reducitons in revenue sharing.

  4. Robert Kleine

    There is no evidence that these tax breaks are going to result in more jobs. SInce January, Michigan employment is down by 7,300 jobs compared with a 70,000 job increase in 2011. This despite a 15% increase in auto sales this year. I know it is too early to be sure about the long term impact but I believe the final result is predictable because of two factors. First, taxes on individuals increased by $1.3 billion which reduces consumer spending and demand for gooods and services. Second, only 18% of the $1.7 billion in tax relief provided by repacing the MBT with the corporate income tax went to manufacturing. Most of the relief went to local servuice businesses who are not that sensitive to changes in taxes. The personal property tax cut may be somewhat more effective but it will not be fully phased in until 2022.

  5. John Q.

    It doesn’t add up for local governments that won’t be reimbursed for lost revenue and it likely won’t add up for taxpayers who will be on the hook for paying off bond payments that were previously paid in part through the PPT.

  6. Neil

    In 1970 Illinois eliminated the business personal property tax with a Replacement profits tax, 5.5%. The tax was collected by the state treasury and paid back to local governments on a proportional basis. This seemed to have worked for Illinois up to now. I guess the Michigan legislature cannot consider that.

  7. s.melvin

    ALL that cost the taxpayer a lot of money ,just think of ALL that PAPERWORK and the extra work at the treasury PLUS now the SENIOR are being taxed on there pension with yearsly increases . familie lost the EIC and so on .School have Lotto money since the 1960/70 so how come there are broke.K-12 get a bit and the public college get $ 273 million…real all that work real puts michigan poeple in the bigger HOLE..

  8. s.melvin

    HOW about Taxen the NON-for profits and the charitis ..they should pay there part instead paying for Commercial or being sponsor ..Blue-cross . DTE etc etc

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