Archive for the ‘Michigan’ Category

A Slight Improvement in Michigan

Sunday, January 4th, 2009

Michigan has one of the worst business tax climates in the country. Legislators in the state made a slight improvement in their tax situation last week when they unanimously approved a bill that would stop Michigan businesses from paying tax on tax.

Yes, you read that right. Under the Michigan Business Tax sales tax in considered part of the gross receipts used in calculating the MBT. That inequity, along with paying tax on tax-exempt interest income, will be eliminated.

Governor Jennifer Granholm is expected to sign the measure this week.

Blinders Here, Blinders There

Wednesday, November 26th, 2008

The dysfunctional California legislature was unable to resolve the budget fiasco yesterday. Democrats proposed a plan that would have tripled the car tax and made a few symbolic budget cuts; Republicans refused to vote for it because they want a permanent measure mandating spending limitations.

The new legislature is sworn in next week. Unfortunately, I suspect that the only difference will be the names and Sacramento will be as dysfunctional as ever.

This is having an impact on California’s ability to sell bonds. Interestingly, the prices for bonds may imply that the state has a huge risk of bankruptcy. At least that’s what a British commentator has said.

And California isn’t the only state in such danger. Michigan, Nevada, and New Jersey are on the list, too. Let’s look at each in turn.

Michigan is likely on the list for two reasons: the troubles with the automobile industry and the state’s miserable business climate. The automobile industry dominates Michigan and there’s a real chance that the entire Big Three (GM, Ford, and Chrysler) will declare bankruptcy. There’s even a higher risk of huge job losses as these companies are going to have to restructure. Meanwhile, the government in Michigan raises taxes on all businesses—I’m sure that’s attracting lots of businesses to Michigan….

Nevada has hit a downturn, too. But there’s a big difference between Nevada and California. The legislature in the Silver State and Nevada’s Governor have reached an agreement on a short-term solution (though there appears to be some smoke and mirrors with that). And Democrats there appear to have some sense of fiscal reality. Steven Horsford (D-North Las Vegas), Nevada Senate Majority Leader told AP, “All of the options are very difficult choices…They hurt Nevada citizens in different ways, and none of the options are good ones. But we have to balance this budget in the short term.”

New Jersey has a huge crisis with its pension plan. “New Jersey’s pension fund has lost more than $23 billion this year, dropping to its lowest level since 2003 as a collapsing financial market battered its investments, a new state report shows…The latest losses — nearly $9 billion in October, and another $3 billion so far this month — mean the fund is now worth $57.8 billion, or less than half the $118 billion in benefits it is due to pay out over time.” New Jersey’s pension plan expects an 8.25% return in 2009 and one commentator bluntly said, “That simply is not going to happen.”

Indeed, pension problems are likely occurring in many states. New Jersey invested in the market. That’s great during upturns but not so good during downturns. How many other pension bombs are out there? I’m sure there are plenty.

It’s always better to confront your problems now than to wait until later. At least in Nevada they appear to be doing that. Here in California and in the swamplands of New Jersey the blinders remain on.

Michigan Replaces Service Tax With Business Surcharge

Monday, December 3rd, 2007

Michigan is in a recession. In fact, it has been in a recession for several years. So what do you do to attract businesses in a down economy? Do you (a) lower taxes and cut government spending, (b) do nothing, or (c) raise taxes and continue to increase government spending?

Well, since I have a cynical outlook on how government works I wasn’t surprised with the outcome. Michigan raised taxes and continued to increase government spending (albeit at a reduced rate of increase). Michigan imposed a business services sales tax of 6% effective December 1st.

That tax met with universal scorn among Michigan business owners and residents, and Michigan’s legislature repealed it. Well, I should say they replaced it. Now Michigan has a 21.99% surcharge to Michigan’s business tax.

The surcharge is supposed to bring in $600 million this fiscal year and $750 million next year. It’s unlikely to generate that revenue. The natural reaction when a tax is imposed is to do whatever behavior you can to lessen the tax’s impact. And one obvious impact will be for businesses that can to shift tax-generating activity out of Michigan and into other states.

Assume you’re a business owner and have two manufacturing plants: one outside of Detroit and one outside of Phoenix. You need to expand operations. Will you do that in your Detroit plant and pay extra tax? In fact, might you not consider closing your Detroit plant and shifting all of your operations to Phoenix?

Michigan has slapped a Band-aid on a very leaky wound, and in the long-term it won’t work. Businesses that can will still flea the state and Michigan’s long-term recession will continue. The only solution is to make Michigan attractive to businesses, and that means lowering taxes. Cutting tax rates increases tax revenues—something Arthur Laffer discovered.

Michigan Businesses Aren’t Happy

Thursday, November 1st, 2007

How would you like to do business in a state where taxes are going up, yet your customers are leaving? And not only are tax rates rising, the state has implemented a tax on services. Welcome to Michigan.

Michigan’s new budget has a myriad of tax increases. As I earlier reported, the state income tax increased from 3.9% to 4.35% and the sales tax will now be imposed on services—that’s a 6% tax, plus the cost in time and money for businesses to comply with the tax.

The taxes were implemented to balance Michigan’s budget. Apparently the legislature in Michigan (and the state’s governor) haven’t heard about the Laffer curve. When tax rates decrease, tax revenues tend to increase.

Meanwhile, business owners in Michigan are fuming. The Detroit Free Press is reporting that Michigan business owners have begun collecting signatures to have a vote on repealing the new sales tax next November. Oakland (Michigan) County Executive L. Brooks Patterson told the Free Press, “The governor is not in a position to dictate. She’s not entitled to revenue neutrality. Spending is going up. They don’t need that much money here.”

Unfortunately, most state legislatures don’t believe in cutting spending to balance the budget. Sometimes it takes the people to remind the legislature who they serve. Perhaps Michigan residents will awaken. After all, it’s supposed to be government by the people, of the people, and for the people, not for the bureaucrats.

Michigan: Jobs Leave, Taxes Rise

Monday, October 1st, 2007

When an economy is having problems and jobs are leaving your state, the normal thing to do is to help businesses. Michigan has other ideas.

The Detroit Free Press’ headline screams, “Chaos averted with deal to raise income tax, add tax to services.” What does that mean for residents of Michigan?

Directly, your state income tax rate has just increased from 3.9% to 4.35%. Additionally, services will now be subject to the 6% state sales tax.

Indirectly, Michigan has just become an even less competitive state for businesses. Why would anyone in their right mind locate a business in the state where the only sure thing is big government?

“Chaos” may have been averted, but the people of Michigan will be long-term losers because of this budget. Interestingly (but not surprisingly), all but one of the Democrats in Michigan’s state senate voted for the tax increase, and all but three Republicans voted against it.

Hail! Hail! to Michigan!

Sunday, September 9th, 2007

The Michigan Wolverines football team hasn’t done very well this year, losing their first two games to Appalachian State and Oregon, both at home. There are probably a lot of angry Wolverines fans. While the University of Michigan struggles, the budget in Michigan is struggling, too. Indeed, it appears that the state legislature and the governor are leading Michigan to a government shutdown come October 1st.

Michigan faces a $1.8 billion deficit. Like most states, each year the budget must be balanced. The governor and the lower house are controlled by Democrats while the upper house is controlled by Republicans. Governor Jennifer Granholm wants to increase taxes by $1.5 billion and cut $300 million in services, while State Senate Majority Leader Mike Bishop wants to increase taxes by $600 million, and cut services by about $1 billion. The two sides haven’t made much headway, and time is running out.

Needless to say, if you live in Michigan, you can expect your taxes will go up. I believe quite strongly that anyone thinking of starting a business in Michigan today might want to consider a neighboring state with a better business climate, lower taxes, and a better football team.

News Story: Detroit Free Press