A very good case can be made that we need to substantially reduce the tax burden on Michigan businesses, maybe even cut it in half, both on an objective and subjective basis.

On an objective basis you have a Citizen Research Council report that shows our "corporate income tax" is far above the national average, ranking 9th among the 50 states and Washington D.C. (Note that Michigan's total tax burden on residents and businesses combined is slightly below the national average.) On a subjective basis the Single Business Tax (SBT) is a bad tax because it is the only tax of its kind, and the nail that sticks up gets pounded.

People must, however, recognize that Michigan will need to replace all of the revenue that is lost when the SBT is replaced. A very small amount of replacement revenue could fairly be attributed to increased economic growth due to lower business taxes, but most of the replacement revenue will need to come from increasing other taxes.

Replacing all of the lost revenue is critical because Michigan will be suffering much slower growth in income, compared to the nation, for the next few years due to the restructuring of the big three. Slower income growth means slower growth in revenue than we will need to sustain the current level of government services. We could probably get by with less revenue if government was willing and able to pay public sector workers less, especially K-12 teachers, but so far I have not seen anyone, including the Republicans, who are willing to advocate this approach. In the long-run, however, this approach may undermine Michigan's chances of returning to prosperity.

I therefore suggest that Michigan look for new revenue in those areas where Michigan's tax burden is substantially below the national average. Based upon the newest census data there are at least three areas where Michigan could substantially increase its tax rates and still be below the national average.

Looking at the combined state and local tax burden on per capita basis Michigan has a much lower insurance premium tax than the national average ($23 per capita in Michigan compared to $50 average in the U.S., Michigan ranks 48th), the utility sales tax ($9 per capita in Michigan compared to $73 average in the U.S., Michigan ranks 45th), and the inheritance tax which I believe has been eliminated in Michigan but remains a significant revenue source in most states. In the most recent census data it shows that Michigan is still collecting $8 per capita from the inheritance tax, the U.S. average was $20 per capita.

By Donald Grimes Senior Research Specialist University of Michigan Institute of Labor & Industrial Relations

Editor's Note: The views expressed in this column are those of Donald Grimes and do not necessarily represent the views of the University of Michigan.