Business Climate
Warming up in Michigan
Historical context:
During the Great Recession, Michigan experienced levels of
unemployment much higher than any other state in the union, as well as beating
the national average. The nation watched
as federal stimulus dollars went to bailing out the Motor City’s biggest
employers: Ford, GM, and Chrysler. Michigan and some of its most prominent
cities are still fighting back from the downward spiral that occurred in 2009.
Although the current unemployment rate is about half of 2009 highs, Michigan
still has a higher rate of unemployment than the national average.
Laying the framework:
Governor Rick Snyder, well known for using his private
sector experience to inform policy solutions, believes one way to catalyze the
return to prosperity for the state is to create a more welcoming economic
climate for businesses. Snyder says, “The role of the government is not to create jobs, it’s to create an
environment for success.” Snyder signed into law substantial adjustments to the
Michigan Business Tax in 2012.
The Harbinger: The Michigan Business Tax was a morass of multiple kinds of
taxes on business property, operations, and transactions and a myriad of tax
credits and incentives. In 2012 efforts were made to simplify the structure and
decrease the amount of taxes businesses would have to pay. Those in favor of
the changes to the Business Tax believe it was the right mechanism to enhance
the state’s business climate, making Michigan a more attractive locale for
businesses to establish themselves and hire Michigan residents as employees.
Opponents claim the burden has merely shifted to individuals with high risk of
little fruitfulness. Michigan is now taxing retirement income and decreasing the
earned income credit. Those most affected by these changes are the low and
middle classes.
Business
taxes were decreased by 24 mills for industrial personal property and combined
with a 35% tax credit; overall, Michigan businesses would have to pay 65% less
in personal property taxes. Commercial personal property tax rates were also
decreased by 12 mills or 23%.
Present Day Implications:
Prop 1 was
a law that was approved by Michigan voters in fall of 2014 that will phase out
personal property taxes businesses pay for office and industrial equipment. The
phase out will mature over a decade and will benefit small and big business
alike. Manufacturing companies, like the Big Three in Detroit, donated $8
million to support the proposal. The proposed plan aims to encourage growth and
investment in the private sector by saving businesses money over time.
Regionally, Michigan was the odd man out because it still enforced the personal
property tax. The phase out is estimated to cost Michigan up to $600 million a
year but businesses will still have to pay about $100 million per annum and the
remaining gap will be repaid to the state through funds businesses have to pay
as previous tax credits expire.
Local
governments will instead receive funds from the state use tax, another type of
property tax, to provide local services.
Links for more information:
Map of 2009 unemployment rates in U.S.:
http://www.bls.gov/lau/maps/stseries.pdf
MI unemployment rates as of Dec 2014: http://www.milmi.org/
Figures on how much auto companies borrowed and paid back:
Michigan Business Tax explained: http://www.michiganbusiness.org/cm/files/Fact-Sheets/MichiganBusinessTaxreplaceSBT.pdf
Ramifications
of Michigan Business Tax adjustment: http://www.governing.com/blogs/view/Snyder-on-Snyder.html
Definition
of Michigan Use Tax:
http://michigan.gov/taxes/0,1607,7-238-43529-155460--,00.html
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