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Just a few months back, Michigan Governor Rick Snyder barely managed to push through a massive bill cutting the state’s largest business tax by over 80% — paid for by raising taxes on Michigan’s elderly and low-income families. Now, Snyder’s administration is apparently readying for Round Two, as Lt. Gov. Brian Calley has declared that his new top priority is slashing business taxes even further. Clearly there’s not a lot of original thinking going on in Lansing.
Calley is referring to the Snyder administration’s plan to repeal the tax businesses pay on industrial and commercial personal property (equipment, furniture and other items used for business purposes). This change would cost somewhere in the neighborhood of $800 million in lost revenue each year – revenues that flow overwhelmingly to local governments in Michigan. As a result, state lawmakers will be tempted to pass the buck to local officials when it comes time to make the many hard choices required by a tax cut of this size.
On average, Michigan municipalities receive about eleven percent of their property tax revenues from these business personal property taxes. As The Detroit News points out, however, that average varies widely across jurisdictions. While the tax usually amounts to just two percent of local property taxes in wealthy residential communities, it can account for 20 to 50 percent, or more, of property tax revenues in some industrial towns.
The most vocal critic of Snyder’s proposed tax cut right now is the Michigan Municipal League, whose main concern is ensuring that the state doesn’t leave local governments high and dry when it comes to paying for repeal. This is a very real concern. When Ohio repealed its personal property tax, the state offered to replace lost local funds on only a temporary basis, and withdrew support even more quickly once the state encountered its own budget difficulties. Governor Snyder’s recent remarks to Gongwer News Service (subscription required) indicate that he’s aware of this concern, describing his plan to be “largely revenue-neutral.” But we can forgive local governments if they are dubious about the governor’s assurances their budgets won’t suffer.
The issue here goes beyond just ensuring that localities aren’t unduly harmed by repeal. Even if the state does pick up the tab, that money is going to have to come from somewhere. And with anti-tax lawmakers in control of both houses of the state legislature and the Governor’s mansion, any tax increase large enough to fully cover the cost of repealing the business personal property tax has a hard road ahead of it. In all likelihood, lawmakers will be tempted to raid existing revenue streams, thereby forcing even deeper cuts on top of those already enacted.
Before going that route, it would be a good idea for the anti-tax true believers in Lansing to take a step back, and ask whether the state will actually gain anything by granting businesses yet another tax cut.