Since the recession ended in 2009, Michigan has sported the nation’s sixth-highest job growth rate at more than 6 percent. The auto industry’s resurgence has been a key factor in that turnaround, but also key is Michigan’s improving economic climate as Gov. Rick Snyder and a Republican Legislature have stabilized the state’s budget, improved its bond rating and made Michigan a right-to-work state.
Another important piece in making the state competitive for the long haul is a friendlier business tax structure.
Snyder’s tax reform, which took effect in early 2012, has vaulted Michigan to 14th among states in best corporate tax climate, according to the Tax Foundation, a national, non-partisan research group. But Michigan cannot rest on its laurels. As it competes with entrepreneurial powerhouses like Florida, Washington state, and Texas—all with no personal income tax—or low-tax Midwest states like Indiana, Michigan still has work to do on property taxes that are higher than the national average.
The competition between states for jobs is intense. The dramatic disparity in corporate tax rates is a selling point — witness ads by Texas Gov. Rick Perry, who this month used a series of TV spots to encourage Maryland companies to relocate to his state.
Michigan too has bragging rights since it overhauled its tax code, plugging special interest loopholes and flattening the corporate rate to 6 percent. “Michigan is now 14th, up from 20th in 2009,” says Joseph Henchman, vice president of legal and state projects for the Tax Foundation. “The jump is a result of its business tax reform.”
Business Leaders for Michigan continues to forecast that Michigan’s economy will grow faster than the rest of the country in coming months even as the national economy struggles under financial and regulatory uncertainty.
“Michigan’s business leaders continue to believe that Michigan will out-perform the national economy over the next year and a half by a significant margin,” says Doug Rothwell, president of Business Leaders for Michigan. Forty percent of business leaders project that their companies will add jobs in the next six months in the state.
Part of that optimism grows from the Snyder administration’s rolling out the business welcome mat to all businesses — not just politically-connected special interests like the film industry that Lansing once larded with subsidies.
“I call it the heroin drip of government -- giving out tax credits. And we need to get away from that,” Snyder said at a recent American Enterprise Institute panel that showcased Michigan’s progress.
“We had the dumbest tax in the state, the Michigan Business Tax,” continued Snyder at AEI. “We’re always looking for ideas on tax reform. Right now, industrial equipment is going to be a focus for the next year. There are fundamental challenges with how property tax is done.”
Indeed, while a separate Tax Foundation study assessing states by business type ranks Michigan the fourth-most-attractive state for new, labor-intensive manufacturing thanks to its low corporate and sales tax rates, Michigan lags at 44th for the mature operations thanks to “the fifth-highest property tax burden among the states.”
Snyder has shepherded property tax reform through the Legislature that will eliminate Michigan’s property tax in industrial equipment. But by law, that tax cut must be ratified by voters next August in a state-wide ballot initiative. If voters follow through, Michigan will no longer be an outlier among Midwest states in punishing industrial machinery.
And that means jobs, jobs, jobs.