Tax Services to Fund Schools? NO

The Detroit Free Press / Robert D. Fowler

State should live within its means, help to grow, promote thriving economy

First, let me say that I agree that the State of Michigan, and in particular our schools, need revenue. We have differences of opinion over priorities and precise levels of funding, but in the end we must have some amount of revenue every year to fund vital services like educating our children.

The question is how to generate that revenue. I disagree with the proposal that the best way to meet the revenue needs of state government and public education is by imposing a sales tax on services. That's a tax hike, plain and simple, and it increases the overall tax burden on struggling Michigan citizens.

We need to get away from the tired old prescription of addressing revenue shortfalls by automatically seeking additional taxes. Part of the solution involves structural reform of state spending that makes state government operate more efficiently and live within its means. That makes perfect sense to small business owners. These entrepreneurs across Michigan have worked ceaselessly, and made tremendous sacrifices, to find ways to live within their means. They expect state government to do no less and are very impatient with the business-as-usual attitude they perceive in Lansing.

But you may be surprised to hear me suggest that another important part of the solution is growing government revenues, but growing them the right way -- not by expanding the tax burden but by fostering a vigorous and prosperous state economy, an economy that provides an appropriate level of tax revenue that meets the needs of public services and schools, without levying an undue tax burden on the private sector.

A thriving economy begins with entrepreneurial business growth that energizes job creation and boosts incomes. That in turn generates revenue for government. But a sales tax on services hurts consumers and hurts small businesses by taking dollars out of their pockets, and away from business growth in the private economy, and transferring an even higher percentage of private resources to the public sector. That's exactly the wrong formula for solving our economic woes.

We're at a tipping point in Michigan's economy. We can either add taxes, in the form of a sales tax on services that further burdens our struggling consumers, or we can take down barriers to business and income growth. Meeting Michigan's revenue needs begins with expanding Michigan's economy, continues with real structural spending reforms and concludes with a higher level of prosperity that benefits everyone in our state.

Robert D. Fowler, is president and CEO of Small Business Association of Michigan

Tax Services to Fund Schools? YES

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.

Robert J. Kleine is Michigan state treasurer.

State Receives Good Marks for Tax Codes

Story from the Detroit Free Press

You may want to cover your ears. I am about to explode two dangerous myths.
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• The first: Michigan is a high business tax state.

• The second: We can cut business taxes without replacing the revenue they generate.

Neither could be further from the truth. And both make it harder to create jobs and promote economic growth in our state.

Those who argue our business taxes are high ignore the facts. When comparing how state tax laws affect economic performance, the nonpartisan Tax Foundation ranks Michigan 20th best in the country, ahead of most of our Midwestern neighbors.

Even with recent changes to Michigan's business tax structure, including implementation of the Michigan Business Tax and the MBT surcharge, which was developed and promoted by the business community, the Tax Foundation's State Business Tax Climate Index for 2009 shows Michigan has a "more favorable" tax system for businesses than in previous years.

The myth that Michigan is a high business tax state is sustained by politics, not facts. It has been perpetuated throughout Gov. Jennifer Granholm's tenure by her critics, who never stop to explain how the business tax structure she inherited from her Republican predecessor and the Republican Legislature he dominated became completely oppressive the moment she took the oath of office.

"When comparing how state tax laws affect economic performance,
the nonpartisan Tax Foundation ranks Michigan 20th best in the
country, ahead of most of our Midwestern neighbors"

Since then, the myth has had an almost constant companion in the notion that we can reduce business tax revenues without sacrificing the things that all of us -- including the business community -- want. Businesses and families will choose to come to Michigan or stay here because we offer good schools, good jobs, access to health care, and safe communities in which to live, work and raise a family.

To find that balance, the governor has done more to reduce state spending than any governor before her. Michigan's general fund expenditures dropped by 7% between 2001 and 2007, the largest decline of any state, according to the National Association of State Budget Officers. And total state expenditures rose the least of any state. State government is also much smaller than it was 30 years ago. Just since 2000, state employment has declined 17%. Michigan ranks 45th in the number of state/local employees per 10,000 citizens, according to Census Bureau data.

Our over-arching goal must be to grow our state's economy and create jobs. To do that, we need a tax structure that allows us to invest in our state, because at the end of the day, businesses and individuals want to be in a state that is thriving, not a state that has failed to invest in its future.