Editorial: Whitmer slumps back toward Lost Decade
Gov. Gretchen Whitmer took a step back toward Michigan's Lost Decade in her first budget proposal, seeking to alter one of the key tax reforms that helped make the state competitive for jobs and investment.
The governor proposes extending the 6 percent corporate income tax on most privately owned businesses. The 100,000 S-Corps, limited liability corporations and partnerships she is targeting include businesses such as shop owners, professional service providers and small factory operators.
Former Gov. Rick Snyder exempted those businesses from the corporate income tax because they already pay the state's 4.25 percent income tax on every dime they earn.
So they were being taxed twice on the same income. That made the Michigan Business Tax, which replaced the equally onerous Single Business Tax, one of the most complex and unfair tax codes in the nation.
It's a key reason Michigan languished in a single state recession for the 10 years leading up to Snyder's election in 2010, unable to respond to the shrinking of the automotive industry.
The governor's budget team insists Whitmer's plan is not double taxation because business owners would get a credit on their state personal income taxes to help offset the higher tax rate they'll be paying.
Extending the tax to private companies is estimated to raise $280 million in new revenue. Budget officials say additional federal tax credits would reduce the impact on business owners to $190 million.
Patrick Anderson of Anderson Economic Group isn't buying the math.
"It's still double taxation," he says. "For some taxpayers, sometimes and subject to considerable limitations, some portion of state and local taxes are deductible from their federal taxes. But the majority of taxpayers don't even attempt to deduct state and local taxes through itemizing.
"I disagree that there's anything close to the $190 million that will come back in federal tax credits. Maybe 10 percent, if that."
Anderson says the complex tax revision, "suggests we’ve learned nothing from the Lost Decade."
Michigan's recovery from that era of dismal tax and regulatory policies has been long and arduous, but last year for the first time it cracked into the Top 10 states for an attractive business tax climate.
That translates to more attention from those seeking to invest and create jobs here, and the retention and expansion of existing businesses.
Hiking taxes on business and making the code more complicated drives out those businesses that have the ability to set up shop across state lines, and keeps those that don't from growing.
On other tax matters, Whitmer is offering a mixed bag.
While the proposed 45 cents per gallon hike in fuel taxes will be hard for residents to swallow, Michigan's horrid roads require that level of investment. Those who use the roads should pay to fix them. The proposal actually raises short of the touted $2.5 billion for roads because $600 million in General Fund dollars that had been going to road work will be returned to education accounts. But it does keep the funding lines clean.
We also support Whitmer's proposed expansion of the Earned Income Tax Credit, which was curtailed by Snyder. The credits provide an incentive for low income residents to join the workforce. Michigan's economy is starved for workers — thanks largely to the tax reforms Whitmer now hopes to undo.
The new governor also seeks to eliminate the state income tax on public pensions that Snyder imposed in the name of fairness. He was correct that pensioners should not be given special treatment at the expense of those who fund their retirements with personal savings, 401(k) accounts or part-time jobs.
But overwhelming the rest of her budget plan is the nightmare of slumping back toward anti-business taxation. It helped destroy Michigan's economy once before, and would do so again if allowed.
The Republican-led Legislature worked hard with Snyder to craft a competitive business environment. Now, it must fight to keep it.