Tax Cuts On Health Benefits Have To Wait

June 5, 2002
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LANSING — Action in Lansing on a proposal to eliminate health-care benefits from provisions of the state’s Single Business Tax won’t occur for at least a year — if at all — as lawmakers cope with shrinking state revenues resulting from weakened economic conditions.

The proposal also competes with a push to speed up elimination of the SBT, Michigan’s primary tax on small businesses that generates more than $2 billion annually for state coffers. The Legislature in 1999 decided to gradually phase out the SBT over a 23-year period, and many in Lansing now want to move up the phase-out to no more than 10 years.

The debate over which route to take — eliminating the health-care provisions, or speeding up the phase-out — won’t come anytime soon, as legislators struggle to trim $1 billion in state spending from the current 2001 and the 2002 fiscal-year budgets. That has many lawmakers, as well as Gov. John Engler, hesitant to consider another tax cut until the economy improves.

“Expending more money for that is not an option right now,” Engler’s spokesman, Matt Resch, said.

That means legislators probably won’t visit the issue until next year, when the economy is expected to have recovered, said Sen. Valde Garcia, a St. Johns Republican and a co-sponsor of a bill to eliminate health-care benefits from the SBT.

“As much as we’d like to see it happen, I just don’t see it until next year. The idea is to have it ready for when the time is right,” Garcia said.

But even when the timing is right, backers of the bill still may have trouble gaining support.

Even Engler is “not inclined” to back the bill, Resch said. Though Engler at this time isn’t signing on to any effort to speed up elimination of the SBT, the governor does prefer tax cuts that are broader in nature, Resch said.

“He’s always felt, when it comes to tax policy, it is better to go in a broad-based way than to target tax cuts,” Resch said.

One business group also prefers to attack the SBT on the other front. While removing health-care benefits from the complex equation used to calculate the amount a company owes under the SBT is desirable, speeding up the tax’s elimination takes higher priority for the Small Business Association of Michigan.

“It’s our No. 1 priority,” said Barry Cargill, the association’s vice president of government relations.

The association wants to see the SBT’s elimination moved up to a 7- to 10-year phase-out, Cargill said. If it had to choose, the association would “absolutely” opt for speeding up the SBT’s elimination over removing health-care benefits from the tax, he said.

Partly driving the association’s position is the ability of a majority of small businesses to qualify for a different tax, the Alternative Profits Tax, which unlike the SBT does not take health-care benefits into account.

“We just need to keep our priorities in order,” Cargill said. “We should not make fixing the Single Business Tax a higher priority than eliminating the Single Business Tax. It is such a bad tax.”

But Garcia believes eliminating health-care benefits as part of the SBT’s equation, a move that would save small businesses in Michigan an estimated $70 million to $80 million, is a better route to go. It would provide immediate relief and help small businesses to offset the escalating cost to provide health benefits to employees.

Besides, Garcia added, addressing the health-care provision does not preclude lawmakers from going back later and speeding up the SBT’s elimination.

While not a large amount of money, Garcia contends that the tax relief resulting from the bill may make the difference in whether a small business can afford to continue offering employees health benefits in the face of annual double-digit premium increases. It may also help stem growth in the estimated 1.1 million people without health insurance in Michigan, 70 percent of whom work for small businesses that cannot afford health benefits, according to a Match report by the Access to Health Care Coalition, a consortium of health-care providers and payers.

“It will do a lot to help small business,” he said. “It might make the difference whether they can afford it and the natural result is having more people covered.”

Among the co-sponsors of the bill, known as Senate Bill 480, are Sens. Leon Stille, R-Spring Lake, Glenn Steil, R-Grand Rapids, and Ken Sikkema, R-Grandville.

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