What is Michigan’s future tax situation?
The ringing of the telephone interrupted my concentration Tuesday night. I was listening to the national election news and also reading a book. Nowadays, that’s spreading my thought processes about as thin as I can get away with. The caller was Rockford City Manager Michael Young. Was it going to be good news or bad news? Was I successful in my run for the City Council? Since it was well after 8 p.m., I knew the votes were all tabulated. The vote count was finalized and we all know there would be no hanging chads in Rockford. I was hoping for good news and it was. Michael congratulated me on being the newest Councilman and for being the top vote-getter by one vote over Steve Jazwiec. What a relief. I can tell you that it puts a little different slant on Election Day when your name is on the ballot.
I want to say “thank you” to each of the people who voted for me, “thank you” to each of the people who supported me but couldn’t vote because they didn’t live in the city, and “thank you” to all of those who encouraged me along the way. It is very gratifying and humbling to receive people’s good wishes, and I truly appreciate it. A special “thank you” goes to my wife Deb and son-in-law Devon, who, along with me, worked many hours and walked all of the four square miles of Rockford passing out information and talking to residents. The three of us now know that about 95% of all driveways in Rockford run uphill, some substantially uphill, with the remaining 5% being somewhat level. There might actually be one or two that go downhill, but those could really have been optical illusions and we just wanted to believe they were slanted downhill.
I will do my best for my term to help Michael and the rest of the City Council meet the challenges and opportunities facing Rockford in the next few years. It’s going to be fun and hard work at the same time. I can do fun and I am good at working hard, so I’m confident that while I’m on the Council, we will keep this part of the world we call Rockford a precious place to live and work.
But now it’s back to taxes. The question at hand is this: How is the election going to affect our future tax situation, in particular 2011? First, let’s look at Michigan. Next week I will look at the federal situation.
Governor-elect Snyder has stated and put in writing that he will get rid of the Michigan Business Tax (MBT). I might have voted for him just based on that promise, because I am 100% in favor of getting rid of this onerous tax. Most businesspeople that I know will support me and the Governor-elect on this item.
However, the MBT does raise over $1,500,000,000. Since Michigan is already under water, as I see it they have some tough choices to make in Lansing. A first choice is to implement a direct corporation tax that simply follows the federal corporate tax rules with a few adjustments. This tax might raise 400-600 million dollars. That leaves a shortfall of about one billion dollars. Additional savings will come from not having such a complicated tax. I would like to know just how many tens of millions of dollars Lansing really spends on staff to constantly update the MBT and administer such a draconian tax. It would probably be shocking.
A second alternative might be to implement a service tax. This has been talked about for a number of years. The tax doesn’t have to be six percent, but it should tax all services and not just certain services. We all suffer or no one suffers. Otherwise, the picking and choosing of which service pays tax and which does not pay tax would be anything but a fair process. This type of tax is not going to be popular with the residents of Michigan, but it would raise a fair amount of revenue.
A third alternative to save tens of millions of dollars would be to eliminate the 20% refundable earned income tax credit that is available on the Michigan 1040 tax return. All taxpayers who receive a federal earned income tax credit also receive 20% of the federal figure as a refundable credit on their Michigan return. This law was implemented several years ago when Michigan had a surplus. Michigan has not had a surplus for many years, but this particular credit has remained on the books.
I am hoping that Governor-elect Snyder pushes through the revocation of the MBT and also makes other changes to balance the budget. I wish him good luck. I have a feeling I am going to have a nicer time dealing with the Rockford City Council and Michael Young than he is going to have dealing with the state legislature. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent. He owns Action Tax Service in Rockford. Contact Jerry at www.actiontaxservice.com.