Michigan Gov. Jennifer Granholm is proposing that the state sales tax be extended to consumer services and the rate dropped from 6 percent to 5.5 percent.

The roughly $550 million raised by the change would go to public education, then gradually shift toward decreasing business taxes.

The sales tax wouldn't apply to health care and social assistance, education, new construction, real estate and insurance commissions and services directly connected to business operations.

The Democratic governor on Thursday is presenting her spending plan for the budget year that starts Oct. 1.

Granholm also is proposing budget cuts, including requiring teachers and state employees to pay 3 percent toward their pensions and 20 percent of their health care premiums.