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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  • by Anonymous on Feb 21, 2011 at 12:09 PM
    The solution is simple. Create jobs and people will come. The movie tax credit shows how easy it is to make jobs in the comminity.
  • by Mary Anne Location: Jackson on Feb 19, 2011 at 12:30 AM
    Ballard needs to go back to school. When businesses (particularly corporations) are paying higher taxes, they are less likely to reinvest into their own businesses and into the communities they serve. Reinvestment into companies means more opportunity and more jobs. Thus, we receive more taxpayers into the system. "Spreading the wealth" through graduated taxation only puts more burden upon those who do the actual purchasing in our state and communities. That purchasing power is seen in everyday life with more employees, less-tightened budgets, and community wealth share.
  • by Anonymous on Feb 18, 2011 at 08:05 PM
    Reducing the tax burden on businesses means more jobs will be created.
  • by anon on Feb 18, 2011 at 06:03 PM
    ..and does snyder think a business owner with a family and children would move to a state with poor school systems, lack of police and fire protection and the list goes on? Now do all that voted for him know just WHY he didn't let anyone know (before he got elected just) exactly what "his plan" was for turning around this state? Yes he is trying to keep his promise of doing away with the MBT but did you honestly expect it not to hurt everyone but the wealthy? Silly, silly, sheeple!
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