Tuesday, February 17, 2015

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:

Ramifications of Michigan Business Tax adjustment: http://www.governing.com/blogs/view/Snyder-on-Snyder.html

No comments:

Post a Comment