After years of thinking up new ways to attract business with special deals, Michigan appears intent on getting out of the big money incentive game by engineering a tax code in which there is little left to abate.
Before it was repealed last year, lawmakers had created some 60 exemptions in a Michigan Business Tax that was just four years old. The new Corporate Income Tax that replaced it has 14 so far, according to the Treasury Department’s latest annual report on tax expenditures.
One of those MBT carve-outs that goes away with the tax was a $152 million credit equal to 35 percent of personal property taxes paid on industrial equipment that already wasn't receiving local tax breaks courtesy of PA 198. Treasury estimates the value of the PA 198 breaks will total nearly $229 million this fiscal year.
Those breaks were necessary, in part, because, among Midwest states, Michigan was an outlier in assessing property taxes on the expensive machinery in large manufacturing plants prized by state and local economic development agencies.
Snyder, Calley seek property tax shift
But before the legislative year is out – if all goes according to plan -- those breaks will become unnecessary. Because under Gov. Rick Snyder’s Senate-passed proposal now in the House, the relevant chunks of the PPT will be gone. Small business, industrial and commercial equipment with a combined taxable value of less than $40,000 would be exempt beginning in 2014. Equipment of far greater value used for industrial processing will be phased off the property tax rolls by 2022.
The main beneficiaries of what will be a $600 million annual reduction in tax liability will be a resurgent domestic auto industry that is driving Michigan’s economic rebound. The plan delivers on a promise of relief made during passage of a Corporate Income Tax that raised the tax bills of large manufacturers -- both through the loss of that PPT credit mentioned above and a through a higher levy on profits. And it comes as manufacturing employment in Michigan pivots from steep decline to above average growth. From the spring of 2000 through the end of 2009, Michigan lost half its manufacturing jobs while the U.S. lost a third of them. Since then, manufacturing employment in Michigan is up 14 percent compared to 4 percent nationally.
The MBT repeal in 2011 was financed by a $1.5 billion increase in income taxes gained by targeting exemptions for individuals, such as on pension income.
The PPT repeal under a revised plan authored by Lt. Gov. Brian Calley is paid for through a new local assessment on business for police, fire and ambulance services. Non-emergency services in counties and municipalities that derive more than 2.5 percent of their revenue from personal property eligible for tax reduction would receive 80 percent reimbursement from the state’s use tax funds. The state School Aid Fund, also a recipient of PPT money, would be replenished as refundable business tax credits expected to exceed $568 million in fiscal 2014 expire.
Say what you want about Snyder’s approach, but at least the numbers add up. For years, lawmakers have added, not subtracted, from the tally of state tax expenditures that has grown by $11 billion in the past decade.
A tax debate that acknowledges choices have consequences would be a healthy addition to the State Capitol.
Peter Luke was a Lansing correspondent for Booth Newspapers for nearly 25 years, writing a weekly column for most of that time with a concentration on budget, tax and economic development policy issues. He is a graduate of Central Michigan University.