MACKINAC ISLAND – Voters could be asked in a November statewide election to approve parts of a wholesale tax-restructuring plan that would include doing away with the Michigan Business Tax surcharge, House Speaker Andy Dillon (D-Redford Township) said Friday. The issue arose at a session with legislative leaders who pledged to resolve transportation funding issues by the end of the year so the state can continue to fully match federal funds beginning in .
The bipartisan pledge on road funding included the speaker and Sen. Mark Jansen (R-Gaines Township), Senate Minority Leader Mike Prusi (D-Ishpeming) and House Minority Leader Kevin Elsenheimer (R-Bellaire), though a consensus on any one proposal was lacking and no support was indicated toward raising taxes by the $1 billion a year that was recommended by a special task force.
Dillon has been working with outside consultants on possible options and would not discuss the details of what all could be in the plan, but he said a decision needs to be reached by September if a ballot proposal is to be pursued. Those options will be ready, he added, by June 11.
They could cover the business tax, a tax on services, tax expenditures, a modified graduated income tax and prevent increases in home taxable value when assessed value is declining.
Dillon said his goal is to make Michigan’s tax climate among the top 10 most attractive in the country. “We’ve got to simplify the business tax and make it competitive,” he said.
But given the budget problems facing the state, he said he does not see the Legislature acting on its own to resolve the complaints about the relatively new business tax and particularly getting rid of the 22 percent surcharge that raises $700 million annually. Any ballot proposal would require bipartisan support since a two-thirds majority vote is required in the House and Senate to put proposals on the ballot.
Elsenheimer said that is a good goal, though he would like a top five ranking, adding, “We have to work on a climate that is conducive to business investment.”
Prusi added that Michigan’s tax structure no longer reflects the economic activity has it has shifted from one heavy on manufacturing to one more geared toward services. “There is room to broaden the base and lower the rate,” he said.
“The public is ready for bold action. We’d be remiss if we didn’t take advantage of this opportunity,” Dillon said.
Jansen said he hoped that at least through a ballot plan, the surcharge can be eliminated, but added the Senate is looking at a wide range of options, including tax credits which could go a long way to making up the money that would be lost by repealing the surcharge.
The leaders said there is little appetite for raising transportation taxes while the rest of the budget is being slashed and so many residents are facing economic hard times.
“The public is not ready for us to raise revenues for roads, but we will have to make the case,” Dillon said, who added he does not think any legislator is prepared to lose hundreds of millions in federal dollars because the current tax system cannot raise sufficient revenues.
Elsenheimer agreed, but said the state first needs to examine the Department of Transportation operations to try to find efficiencies, and stop transfers of road tax funds to other departments, significant portions go to the Department of State and Department of Treasury, which would free up “a great deal of revenue. There’s a social compact that if you buy a gallon of gas, you expect that revenue will go to roads and that’s not being done,” he said. “You’re going to see some necessary change in how we collect taxes, the question is, is this the right year.”
Jansen called on federal officials to freeze the matching rate for Michigan, which has long been sending more taxes to Washington than it receives, since it is falling to the lower rung in state rankings of personal income.
Dillon said he did not mean to sound quite so negative on the recommendations of the transportation funding task force, but said the deficits facing the rest of the state budget have to be resolved first. “There’s no appetite for Republicans to take up taxes now and it’s very hard to justify raising $1 billion for roads when we’re cutting mental health and other services dear to our members.”
Michigan Chamber of Commerce President Rich Studley, who co-chaired the task force, said the message of making a decision by year’s end to prevent the loss of federal funds was a positive one. He said the potential loss of funds is something that more legislators are beginning to understand, and accepted that looking at the transfer of current taxes for nonroad use is a fair issue to raise even though it does not produce the amount of new revenues the task force recommends.
It proposed doubling the revenues over several years by doubling the registration fees and changing the gas tax from a per gallon rate to one based on prices imposed at the wholesale level.
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