What Eliminating the MBT Would Really Mean

By: Liam Martin Email
By: Liam Martin Email

LANSING -- "It is a job killer. It is fundamentally unfair."

The word from Gov. Rick Snyder on the Michigan Business Tax -- his No. 1 target on the campaign trail, and Thursday he proposed its elimination.

"That, in an of itself, will send the message that Michigan is serious about attracting business," said Tricia Kinley, a tax-policy expert with the Michigan Chamber of Commerce.

She described the MBT as complicated and too burdensome for the state's business owners.

Here's how the MBT works.

It taxes (1) business income at about 5 percent; (2) Modified gross receipts at 0.8 percent (if a sandwich shop sells a sandwich for $5, it subtracts what it cost to make the sandwich, and applies the 0.8 percent rate to that final number); and (3) an additional 22 percent surcharge on the combined total from the above two.

For small business owners, that can be a lot to handle. They pay an individual tax on their income, like we all do, and a business tax on those same earnings -- the dreaded double-tax.

"We have companies that experienced $200,000 tax increases" when the MBT was introduced, Kinley said.

But not anymore, at least if Snyder's budget proposal passes as is. Under the new plan, 95,000 small businesses across the state would be exempt from any corporate tax, leaving just 'C' corporations(those that issue private or public stock) to pay a flat 6 percent rate.

But while many groups across the state agree the MBT was too complex, they wish the governor had proposed a different way to pay for it.

MSU Economics Professor Charles Ballard argues that expanding the state's 6 percent sales tax to services could generate some $3 billion dollars in revenues. He noted that would "level the playing field," a key mantra of Gov. Snyder's tax reform, between services and the rest of the economy.

"That would be more than enough to avoid the deep cuts that we're seeing in various programs, especially education and aid to local governments," Ballard said, adding that he'd like to see Michigan institute a graduated income tax.

That would generate another $2 billion for the state's general fund, which has been reduced a whopping 40 percent over the last decade.

Either of those two solutions, Ballard argues, would be preferable to Snyder's proposed cuts.

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