The Detroit Free Press / Robert J. Kleine
Modernize the State's System to Stabilize Funding, Transform Economy
Education is the key to transforming Michigan's economy. We must act to properly fund Michigan schools. Otherwise, we risk further cuts to education and damage to our economic diversification and job-creation efforts.
Inadequate funding already has forced a $165-per-pupil cut for schools this fiscal year. If changes are not made to Michigan's tax system, schools could face an additional $255 per pupil cut in the 2011 fiscal year.
A major revenue source for schools is the state sales tax, which is levied on goods and a few services. But the sales tax base is shrinking because consumer spending has changed. In 1950, consumer spending was 60% on goods. Today, more than 66% of consumer spending is on services. As the percentage of spending on goods declines, the base for funding Michigan schools decreases.
Gov. Jennifer Granholm has proposed fixing this structural problem by lowering the existing sales-and-use tax rate from 6% to 5.5%, while broadening the base to include other services. Michigan now taxes only 27 of 168 transactions it classifies as services, which ranks 39th lowest in the nation, according to the Federation of Tax Administrators. At 5.5%, Michigan would have one of the lowest sales tax rates in the nation. Only five states would have a lower rate.
The governor also wants to cut the Michigan Business Tax (MBT) surcharge in half in 2011 and completely eliminate it in 2012. Phasing out the surcharge, together with additional stepped reductions in the MBT gross receipts tax rate, will help Michigan businesses invest and create jobs.
The net revenue impact of the changes to the sales-and-use tax and the Michigan Business Tax is $554 million for the 2011 fiscal year. That $554 million will go directly to the School Aid Fund. By the end of the 2013 fiscal year, the changes to the sales and use tax and MBT will be revenue neutral.
Some argue that, before considering any tax changes, there must be further cuts in state spending along with government reforms. Governor Granholm has cut more state spending than any governor in Michigan history, resolving more than $10 billion in deficits. The governor is recommending another $566 million in spending reductions for the 2011 fiscal year.
Also, in January the governor outlined her 29 reforms for Michigan government, including significant changes to public employee pensions and health care. These reforms will save $7.8 billion over the next decade.
But Michigan will not be more attractive to businesses simply by reforming government and cutting spending. We must invest in the things most critical to attracting business investment.
Education tops that list. By modernizing the state's tax system, we can stabilize school funding in Michigan. Children will receive the world-class education they need to compete in a global economy. And business will get the educated workforce it seeks and requires.
Inadequate funding already has forced a $165-per-pupil cut for schools this fiscal year. If changes are not made to Michigan's tax system, schools could face an additional $255 per pupil cut in the 2011 fiscal year.
A major revenue source for schools is the state sales tax, which is levied on goods and a few services. But the sales tax base is shrinking because consumer spending has changed. In 1950, consumer spending was 60% on goods. Today, more than 66% of consumer spending is on services. As the percentage of spending on goods declines, the base for funding Michigan schools decreases.
Gov. Jennifer Granholm has proposed fixing this structural problem by lowering the existing sales-and-use tax rate from 6% to 5.5%, while broadening the base to include other services. Michigan now taxes only 27 of 168 transactions it classifies as services, which ranks 39th lowest in the nation, according to the Federation of Tax Administrators. At 5.5%, Michigan would have one of the lowest sales tax rates in the nation. Only five states would have a lower rate.
The governor also wants to cut the Michigan Business Tax (MBT) surcharge in half in 2011 and completely eliminate it in 2012. Phasing out the surcharge, together with additional stepped reductions in the MBT gross receipts tax rate, will help Michigan businesses invest and create jobs.
The net revenue impact of the changes to the sales-and-use tax and the Michigan Business Tax is $554 million for the 2011 fiscal year. That $554 million will go directly to the School Aid Fund. By the end of the 2013 fiscal year, the changes to the sales and use tax and MBT will be revenue neutral.
Some argue that, before considering any tax changes, there must be further cuts in state spending along with government reforms. Governor Granholm has cut more state spending than any governor in Michigan history, resolving more than $10 billion in deficits. The governor is recommending another $566 million in spending reductions for the 2011 fiscal year.
Also, in January the governor outlined her 29 reforms for Michigan government, including significant changes to public employee pensions and health care. These reforms will save $7.8 billion over the next decade.
But Michigan will not be more attractive to businesses simply by reforming government and cutting spending. We must invest in the things most critical to attracting business investment.
Education tops that list. By modernizing the state's tax system, we can stabilize school funding in Michigan. Children will receive the world-class education they need to compete in a global economy. And business will get the educated workforce it seeks and requires.
Robert J. Kleine is Michigan state treasurer.
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