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 |  Subject: Political anger toward Michigan Business Tax is NOT misdirected  Sun Oct 10, 2010 7:11 am | |
| Although the vast majority of voters don't pay it directly, the Michigan Business Tax has been a major issue in this year's state election campaigns.
Even many Democrats agree with Republicans that the MBT is too complex, too costly and must be replaced. Some would eliminate it without a replacement.
They say, without many specifics to back them up, that the tax is a jobs killer that drives businesses out of Michigan.
Political candidates and many business owners are particularly upset with the MBT's 22 percent surcharge that they view as an onerous tax atop a tax.
But the latest data from a group of corporate tax executives suggest anger toward the MBT is misdirected.
The biggest tax burdens on businesses in Michigan are property and sales taxes, according to the Washington, D.C.-based Council on State Taxation.
COST, as the organization is known, isn't a group of closeted policy wonks. It's made up of tax lawyers, accountants and administrators at mostly large U.S. corporations -- the folks with firsthand knowledge of how much businesses actually pay in taxes.
Accounting firm Ernst & Young LLP prepared the group's annual study on state and local taxation.
This year's report, based on 2009 tax data, found that property and sales taxes comprised 70.7 percent of total business tax payments by Michigan companies.
Just 11.7 percent of taxes paid by Michigan businesses came from gross receipts and corporate income taxes captured by the MBT. The rest of the business tax burden is in unemployment, licensing and other miscellaneous taxes.
That was generally the case for most states. While state and local business taxes for all states fell 3.5 percent last year, mainly because of the recession, property taxes on businesses increased 2.7 percent.
COST also calculated the growth in business tax revenue on a state-by-state basis between 2005 and 2009. Michigan recorded the third-smallest increase in the nation behind Connecticut and Idaho, respectively.
Michigan's overall businesses taxes as a percentage of gross state product also don't portray a state that is widely out of sync with competitors.
State and local business taxes represent 5 percent of gross state product, slightly above the national average of 4.7 percent. Most states fell within a range of 4 to 5 percent.
COST also looked at the tax-benefit ratio of government services paid by businesses taxes. By that measure, it can be argued that Michigan businesses are taxed fairly.
Businesses received $1 in government services for every dollar they paid in taxes last year, the study found. That calculation assumes 50 percent of education spending in the state benefits businesses.
If the MBT is a relatively small portion of total business taxes, why are so many people so upset about it?
One reason could be that many unprofitable businesses are still paying the MBT because it taxes gross receipts, said Tim Bartik, senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo.
"Companies don't like the idea of paying taxes when they aren't making a profit," Bartik said.
Those running for governor and the Legislature also can rail against the MBT, but they can't do much about the larger property tax burden because local units of government levy most property taxes.
After all the campaigning is done, the new governor and lawmakers will find themselves wrestling with a projected $1.6 billion deficit in the general fund budget for the 2011-2012 fiscal year.
They'll likely discover that promising to cut business taxes is much easier than actually doing it.
ANCAPS: ANARCHO-CAPITALISTS
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