Tax reform: panacea or distraction?(VOTE4BIZ)

After completely replacing that state's main business tax in 2007, is Michigan prepared to take another serious look at its tax structure? Some in the Legislature think now is the time to radically change the way Michigan taxes. Leadership in the State House of Representatives have made it their personal goal to push through major tax changes this year with an eye on improving the business tax climate in the state. Of course, the Michigan Business Tax (MBT) surcharge, which was tacked on after the outcry over the middle-of-the-night deal that imposed a service tax on things from lawn service to baby-shoe bronzing, is a number one target. Business groups think that an even more productive goal would be to make the state's business tax burden one of the top 10 in the nation. This would mean an overall business tax cut of over $2 billion.

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The key problem with tax reform is that the crafters of a plan in the Legislature will come up with something "revenue neutral," meaning it will not impact the state's budget either positively or negatively. The trouble with reform that is "revenue neutral" for that state is that it is never "revenue neutral" for taxpayers. Rumored items to help pay for a cut in the MBT have included the introduction of a graduated income tax (which would require a constitutional amendment) and reintroduction of a plan to extend the sales tax to services. Business owners and employees could pay for their business lax cuts with increased income taxes and paying a sales tax on services ranging from haircuts to Tiger tickets. Further, the costs for small service businesses to comply with the service tax could be significant.

Business leaders also question how accurately stale and private sector economists can model revenue projections for a new tax system during this volatile economic time. State economists have routinely been wrong on their revenue projections for the state budget for the better part of 10 years. Now with two of the state's biggest private sector employees seeking bankruptcy protection and property values dropping, there is little reason to believe their accuracy will improve.

Regardless of whether or not tax reform proceeds, it is vitally important the business and government leaders in the state have a conversation of what kind of state we want to be in the future. This shared vision is crucial to ensuring the state comes out of our current economic hurricane stronger than when we went in.

Brad Williams is director of government relations for the Detroit Regional Chamber.

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