The brand-new state-by-state business tax burden rankings once again contradict the common perception that Michigan drives away business with high taxes.
The 3rd annual state rankings by East Lansing-based Anderson Economic Group list Michigan at 22nd among the states in terms of business taxes as a share of profits. Michigan’s taxes were listed at 14.94 percent of business profits — well below the national average of 16.69 percent of profits.
In fact, had Michigan’s public sector collected business taxes at the national average, Michigan businesses would have paid another $1.6 billion in annual taxes — enough to solve quite a bit of public sector budget trouble.
But here’s the rub… the Anderson study is based on 2006 numbers (the most recent national data.)
The rankings will be very interesting to watch over the next couple of years as they eventually account for the Michigan Business Tax surcharge passed by the Legislature at the end of 2007. As we pointed out in December, Michigan business tax revenues were up 8 percent in 2008 despite the frigid economy and business groups are howling for reform.
But tax breaks are up, too, by 6.7 percent in 2008. Altogether, Michigan doles out some $36 billion in tax breaks to businesses, pensioners and, well, just about everybody in some fashion.
All of the data points to one thing… a sustainable, fair, transparent, and competitive tax system in Michigan would require an overhaul of the entire tax code. Will legislators and a new governor be up to the task after the 2010 election?
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A couple interesting thing about the Anderson report.
Given the recent talk about a progressive income tax replacing business taxes in Michigan, it’s worth noting that eight of the ten states that scored “best” (had the lowest business tax burden as a percentage of profits in the report) have a progressive income tax. In other words, other states seem to find the best way to lower business taxes is to put in place a progressive income tax.
Second, it’s also worth nothing that seven of the 10 states that scored “best” have lower per capita income than Michigan. That raises an interesting question: Are lower business taxes really the ticket to higher prosperity? It’s important to cast that net widely — just comparing the MBT (or old SBT) to a state that uses 10 business taxes, one of which is a business income tax, is not going to cut it. But do we really want to emulate Indiana — a low tax, low per capita income, high unemployment state — or Minnesota, a high per cap income, lower unemployment and yes, slightly higher tax state?
All these things our state government have done for the last 6 years have not taken Michigan out of the recession. Michigan was in a one state recession until the Subprime recession arrived. The governor’s and Democrat’s playbook did not work: picking winners and losers, tax abatements, Renaissance Zones. Now Michigan does not compete with Ohio on business manufacturing taxes: No MBT (only an activities tax), no business personal property tax, and no sales tax on business purchases. How is Michigan going to compete with Ohio on manufacturing taxes, without Michigan eliminating these taxes? These taxes increase the cost of products and services from Michigan, that have to compete in the national and global economy. Has Michigan manufacturing business, that is in trouble, not realized it can move to the Toledo strip and eliminate a good amount of the business tax burden? Maybe the employees could commute to a new business location in the Toledo strip?