Gubernatorial candidates want to change Michigan Business Tax; Snyder calls for flat tax

Mich. gov candidates want to change business tax

LANSING, Mich. — GOP gubernatorial candidate Rick Snyder wants to exchange Michigan’s main business tax with a flat corporate income tax that would cost businesses less but could leave the state with $1.5 billion less in revenue each year.

In unveiling his proposal Wednesday, the Ann Arbor businessman adds his voice to those of other Michigan gubernatorial candidates who have called for changing the way Michigan taxes businesses.

Under Snyder’s plan, the Michigan Business Tax — which generates $2.2 billion a year — would be eliminated. Instead, the state would examine what businesses list as federal taxable income and levy a flat 6 percent tax on that amount, raising about $700 million annually.

Snyder said the state could make up the $1.5 billion lost by reducing what it spends on public workers’ wages and benefits, scaling back about $30 billion in special tax breaks and making government run more efficiently.

Gov. Jennifer Granholm wants to eliminate the 22 percent surcharge that was added to the business tax in late 2007 to replace an unpopular sales tax on services.

But swapping the business tax for a flat corporate income tax would ignore half the business income in the state that comes from companies that aren’t formed as corporations, Granholm spokeswoman Liz Boyd said.

“The Michigan Business Tax is a balanced tax that was designed with the Michigan business community,” Boyd added. “It’s designed to help them pay for services.”

Nearly all the gubernatorial candidates, Democrats as well as Republicans, have suggested doing something with the business tax — or at least the added surcharge.

Democratic state Rep. Alma Wheeler Smith has called for eliminating the surcharge, although she would keep the main tax in place. But unlike Snyder, Smith would make up the lost revenue — and raise more — by extending the sales tax to services, replacing the state’s flat income tax rate with a graduated one and eliminating $3 billion in business tax exemptions.

On the Republican side, Attorney General Mike Cox wants to cut the Michigan Business Tax by 50 percent and then phase it out completely. He said he’d make up the lost revenue by cutting the size of state government.

Oakland County Sheriff Mike Bouchard and U.S. Rep. Pete Hoekstra also want to eliminate the tax. They say it’s important to lower taxes to draw more businesses and jobs to the state.

Cox, Bouchard and Hoekstra have pointed to changes in state government that could save money, but have not said specifically what they would cut to make up the $2.2 billion lost if the business tax is eliminated. The nonpartisan Senate Fiscal Agency says the state already faces a deficit of up to $1.8 billion in the budget year that starts Oct. 1.

Democrat John Freeman, a former state representative, said eliminating the business tax “would only exacerbate the budget crisis.” He favors restructuring all of Michigan’s taxes.

Two candidates, GOP Sen. Tom George and Democratic Sen. Hansen Clarke, have voted to eliminate the 22 percent surcharge, a change that would decrease business tax revenue by about $500 million a year. That tax cut has not been taken up by the Democratic-controlled House.