By Roger Buchholtz
March 17, 2011
As we live with it daily, we don’t have to be told that Michigan has one of the worst business environments in America. Taxes are a major negative contributor to our business environment and a 2009 Ernst & Young study shows Michigan with the highest business taxes of six neighboring states. For example, a company with $1 million in annual sales in Ohio pays $150, but in Michigan the company pays $8,048. At $5 million, the companies pay $4,050 in Ohio and $28,676 in Michigan.
Gov. Rick Snyder’s proposed 6 percent business tax improves Michigan’s business tax environment for some and reduces tax compliance cost, however:
- ]It is insufficient to change business location and expansion decisions;
- It continues to reduce the return/reward for productive behavior (work, saving, investing, etc.) by taxing the income of individuals and businesses;
- It creates an additional ~$1.6 billion hole in the state budget at a time when social safety net needs are so high;
- Because the proposal only requires action by the legislature to be enacted, it can easily be changed in the future (no constitutional protection);
- It does not prevent future increases in the tax rate, re-imposition of today’s MBT or tax caps, or levying new taxes;
- It perpetuates a tax system where tax favors are bought and sold, resulting in unfairness, inefficiency, and corruption of our representative form of government;
- It rearranges winners and losers, rather than guaranteeing equal tax treatment for all;
- Because business taxes and taxes on income are passed on in the price of the goods and services being produced, Michigan products remain less competitive.
Various Business groups oppose Snyder’s 6 percent business tax, as it increases the tax burden on large companies that are “key” members of these organizations. Their opposition exposes the disparity in the treatment of their members under the MBT, where the big companies benefit from a tax cap and exceptions but smaller companies do not.
The Business Leaders for Michigan (BLM) proposes lowering the MBT while keeping the income tax on individuals unchanged. This plan has shortcomings similar to the Snyder plan.
Others have suggested various kinds of value added taxes (VAT). Such plans have a high compliance cost and, like the Snyder and BLM plans, a VAT will inflate the cost of Michigan-made products, making them less competitive. They also generally hide much of the tax burden from citizens in the prices of the things they buy.
The solution is the non-partisan Michigan FairTax, a loophole-free retail sales tax on new goods and services that replaces/eliminates the MBT, PPT, business SET and individual income taxes by constitutional amendment. It’s applied only one time, and that is when a retail purchase is made for personal consumption (business purchases are not taxed). It thereby removes taxes from the cost of Michigan-made products and gives Michigan the most competitive tax rate in the U.S. (Nothing beats 0%!)
The FairTax solves the equal tax treatment problem by “taxing” all businesses at the same 0 percent tax rate. It solves the chronic budget problem by relying on the most stable revenue source available, the sales tax. It saves billions annually in business and individual tax compliance cost (the only tax returns will be for retail businesses sales tax).
To protect poor and fixed-income households, the MI FairTax makes simple payments to every Michigan household. These offset the tax on expenditures up to the poverty level (payments are based upon the size of each household, not income).
Why is the MI FairTax the solution?
- The 0 perent tax and $0 compliance is sufficient to persuade businesses to locate and expand in Michigan;
- It stops the practice of punishing/taxing desired productive behavior;
- The stable and sufficient revenue from the retail sales tax allows proper state government budgeting;
- As a constitutional amendment it assures long-term tax consistency;
- It eliminates the corrupting trade in tax favors and treats all businesses equally;
- It improves competiveness by removing Michigan state taxes from the cost of producing products in Michigan.
The people of Michigan want the MI FairTax as evidenced by the last election which swept into office an unprecedented number of candidates (about half of the Michigan Senate) that support the MI FairTax.
We business owners and professionals can sit on our hands and hope others will save us (which has not worked well in the past) or we can get involved and advocate for real and lasting tax reform, and require our elected officials to do what is in the best interest of the people of Michigan. Time is of the essence, as tax reform decisions are being made now in Lansing.
To see the Ohio study, The MI FairTax study and MI FairTax FAQ’s, visit www.mifairtax.org.
Roger Buchholtz is MI FairTax president. An economics major, entrepreneur and owner of two small businesses, Buchholtz has been the leader of the Michigan FairTax movement since its inception. He can be reached at [email protected].