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Opinion: Michigan finally becomes a 'top 10' for business climate

By Patrick L. Anderson

Michigan has been working to improve its business climate for at least a decade. Stung by national reports—sometimes exaggerated—that made it seem like it was the worst state in the nation for taxes on employers, both civic and business leaders recognized we had to do something to make it easier to hire and invest in Michigan.

We now have great news for Michigan. For the first time in recent history, Michigan has broken into the top ten states for taxes on businesses. For business conducted in calendar year 2016, including all the wages paid, payroll taxes withheld, and taxes paid on income, property, and sales, Michigan had the ninth-lowest business tax burden in the country.

The Capitol building in Lansing.

This ranking arises from hard data on actual taxes paid by operating businesses, documented in Anderson Economic Group’s 2018 Business Tax Burden Ranking report. This is the ninth edition of a comprehensive analysis of business taxes in all 50 states and the District of Columbia. The report, using methodology developed over a decade ago, addresses 11 different categories of taxes paid by business. Of these, property and sales taxes are the largest, exceeding business income taxes and sales taxes paid on business purchases. Income taxes paid on employee wages are not included as “business” taxes in this analysis, but taxes paid by business owners on their company’s earnings are.

A quick look back illustrates how far we have come. During the “lost decade,” Michigan really was one of the worst states in the country in terms of tax burden on businesses. I recall explaining that we were not actually 48th out of 50, as had been estimated in some contemporary calculations on taxes paid in the largest cities in each state, but were closer to 32nd out of 50. Of course, being 32nd in a race to get workers hired and investments made is not a very good place to be.

We are in a much better place now, and getting here required the efforts of civic and business leaders as well as a handful of government leaders. It is worth noting the key developments that pushed Michigan into the lead:

  • Repealing the Single Business Tax, through a citizen-led initiative in 2006. This effort, led by L. Brooks Patterson, was a signal that the citizens would not wait around for their elected officials to act.
  • Adopting the goal of a “top 10” state, by the board of Business Leaders for Michigan in 2009. The adoption of this goal, and the measurement of progress regularly since, has been a powerful message to the state’s elected officials and fellow business leaders.
  • The replacement of the Michigan Business Tax by the much simpler corporate income tax in 2012. This single step eliminated the double taxation of the majority of Michigan’s small and medium sized businesses, a centerpiece of Gov. Rick Snyder’s first term in office.
  • The defeat of the 7 percent sales tax constitutional amendment in May of 2015. This effort—again led by citizens—demonstrated that the public was expecting its government to make the tough choices on spending money, and not off-load that burden onto them every time a funding crisis emerged for an important program.
  • Successful resolution of the Detroit bankruptcy, which finally occurred in 2014 and which centered on a “grand bargain” assembled by federal judges Steven Rhodes and Gerald Rosen beginning in 2013, and involved saving the treasures of the DIA, restructuring pension obligations, shedding debt for which repayment was doubtful, and the approval of the plan by Detroit pensioners.

It is remarkable to observe that most of these developments arose from citizens, business leaders, and local government officials. This accomplishment is a credit to all of them, as well as to the government leaders that played important parts.

In the coming years, it will be tempting to slip back into the undisciplined spending and erratic tax policies of the past. If we want to continue to employ nearly every worker seeking a job, and to have an opportunity to land important projects, we have to maintain our standing as a competitive business climate state. We have worked hard to get here. Let’s stay here. 

Patrick L. Anderson is principal & CEO of Anderson Economic Group.