SBT Not The Culprit

September 5, 2006
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GRAND RAPIDS — A recent study done by a reputable employment research institute repudiated the notion that the Single Business Tax was the "job killer" that many state lawmakers claimed it was.

The report from the Upjohn Institute for Employment Research in Kalamazoo also noted that Michigan businesses weren't over-taxed and the declining automotive industry was more responsible for the state's economic doldrums than taxes.

"We were not surprised," said MichaelShore, spokesman for the Michigan Economic Development Corp., which commissioned the study.

"Even though we operate in the CapitalCity, we hear all sorts of suppositions of what moves or doesn't move the business community. We heard for a long time that taxes were a real negative determinant, and that might have been true in the past. But the Upjohn study tackled that question and said it's changed enough that it's not really the issue it used to be. Certainly the SBT was not as big as it was thought," said Shore.

The Upjohn study tied Michigan's slow job growth to the state's "overspecialization in the Big Three auto companies" and reported Michigan's share of auto-related employment was more than seven times the national average.

"This finding makes it unlikely that Michigan's recent slow growth is primarily due to allegedly excessive business taxes or inadequate job skills. The slow growth of autos in Michigan is probably due to national and international trends and to trends in the auto industry, not to the state of Michigan's policy choices," read the report.

As for the state's tax standing in relation to the rest of the nation, the Upjohn study found:

  • Overall state and local taxes per dollar of personal income were 5 percent below the U.S. average.
  • Average state and local business taxes per dollar of private gross state product were 12 percent below the U.S. average.
  • State and local business taxes on investment in a new business facility were 19 percent below the U.S. average.

The study went on to calculate that a replacement for the SBT could boost economic growth statewide by 0.09 percent to 0.16 percent, depending on what type of tax is enacted and what kinds of changes are made to public spending in the state.

It also reported that Michigan trails the rest of the country in job growth by 1.5 percent per year and that a replacement tax isn't likely to fill the hole.

"These business tax changes would make up no more than one-ninth of this growth gap at best," read the report.

Shore said the biggest news from the study for the MEDC was that Michigan is still too dependent on the auto industry.

"When GM, Ford and Chrysler are doing poorly, the whole state is impacted significantly. That was something that needed to be said, because in all of the discussion about Michigan's economy, it tends to get lost — as obvious as it might be," he said.

The day state lawmakers gave the SBT an exit two years before it was to have expired, the state agreed to give Ford Motor Co. $151 million worth of SBT credits over 20 years for the automaker investing up to $1 billion in state facilities. With the SBT finished by the end of next year, the state will have to find a replacement credit to get the company's investment.

If the new tax is based on profits and if Ford continues to lose money, Shore said the MEDC will find a way to keep its commitment to the company. He also said lawmakers have assured the agency the SBT replacement could be used as a business incentive.

"We found our business taxes are at or below the national average and the average of neighboring states," said Shore. "The argument that there is a simple solution — and that is, just keep cutting business taxes and businesses will flow across the state border — just doesn't hold a whole lot of water."    

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