Is It A Kiss Of Death

May 12, 2008
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GRAND RAPIDS — Although the proposed statewide tax plan would eliminate most of the levies businesses currently pay — including the much abhorred Michigan Business Tax — the state’s largest and most powerful business association recently expressed a strong opposition to the Fair Tax.

The Michigan Chamber of Commerce complained that if the Fair Tax makes the fall ballot and is approved by voters, state residents would have to pay the taxes out-of-state businesses currently pay because there wouldn’t be a business tax in place to collect revenue from those outside companies that do commerce in Michigan. And, for some, that charge may have enough clout to kill the proposal before it gets to voters in November.

“Knowing the chamber as I do — knowing their power — that is over,” said Don Stypula, Grand Valley Metro Council executive director, of the push to put the tax on the ballot.

“When the chamber opposes something, it puts a lot of money into a ‘no’ campaign,” he added.

The Metro Council had State Rep. Fulton Sheen, a Plainwell Republican and the plan’s leading advocate, explain the Fair Tax to its membership at last month’s meeting, and many who heard the presentation seemed to come away interested by what Sheen proposed.

“I thought Rep. Sheen’s presentation was good,” said Jim Buck, Grandville mayor and GVMC chairman.

The Fair Tax would raise the state’s sales tax from 6 percent to 9.75 percent and replace most major state taxes, including the MBT, the personal property tax businesses pay and the income tax individuals pay. The proposal would also give each resident a monthly “prebate” — a refund based on federal poverty guidelines — to help cover the increase in the sales tax.

“We’re all going to pay it; it’s a consumption tax,” said Stypula.

Stypula added that he found elements of the Fair Tax intriguing because the new levy would remove the tax burden from job creators.

“I think it would make a great debate in the fall,” he said.

Kentwood Mayor Richard Root, who chairs the council’s Legislative Committee, said the Fair Tax may have some negative outcomes that haven’t been uncovered yet. Walker Mayor Rob VerHeulen agreed with Root.

“The unintended consequence of any sweeping legislation is always a little bit fearful and that was probably my clearest thought on it,” said Root.

“While it has merit, there are a lot of other programs that have yet to be explored,” he added.

Grand Rapids City Manager Kurt Kimball told the Business Journal that he is keeping an open mind to the proposed taxing system and said Sheen made a number of good points in his address last month.

“Like Don Stypula, I am rather intrigued with the plan. It certainly has, as one of its benefits, a simplicity — the exact opposite of the new MBT, which is just an abomination,” he said.

One aspect of the tax plan that impressed Kimball is the monthly refund residents would receive. Sheen said that element counters the claim that the Fair Tax is a regressive levy, as the refund would prevent placing a greater financial burden on the state’s poorest individuals.

“If you listen to the story on how the regressive nature of a consumption tax is moderated by the elements of the plan, I think you can have a knee-jerk reaction in opposition to it initially. But the more I learned about it, I found it more and more intriguing,” said Kimball.

Sheen also told council members last month that the proposal would guarantee revenue-sharing payments to all municipalities, an aspect that also impressed Kimball. The city has lost more than $30 million over the past six years that it was supposed to get from that revenue source, which comes from the current sales tax.

State lawmakers have kept those dollars to help fill the deficits in the state’s general operating fund.

“Anything that assures that the state won’t horse around with monies that are due us is an attractive piece. But I’d always be for something like that, whoever proposed it. That’s really a sideliner — a minor element — in terms of how the citizenry of the state needs to think about the Fair Tax,” said Kimball.

Falling retail sales could negatively affect total revenue under the Fair Tax. But Kimball said that situation currently exists, and he pointed out that the Fair Tax would add services to the tax roll, which would broaden the tax’s collection base to help make up for revenue lost from the retail sector. Business-to-business purchases would be tax exempt under the plan.

“Put it this way: It may not be a perfect arrangement but it might well be better than what we are saddled with,” said Kimball. “I look forward to an interesting debate on the subject and I hope it gets on the ballot.”

Kent County Administrator and Controller Daryl Delabbio said he hadn’t formed an opinion on the proposal yet, but plans to learn more about it.

The Hillsdale Policy Group, a consulting firm specializing in taxation and policy analysis,  reviewed the fiscal effect the Fair Tax would have on the state’s revenue stream and concluded the levy would bring enough funds into Lansing to replace the current taxes it would eliminate.

“Our analysis indicates that the MI Fair Tax rate of 9.75 percent would, even allowing for the prebate, generate enough revenue to replace Michigan’s income tax, business tax, personal property taxes and insurance premium taxes as they were levied in the most recent fiscal year,” read the report.

Fair Tax proponents have until July 7 to collect 381,000 valid signatures to get the plan on the ballot. Passage would amend the state’s constitution and dramatically change the taxing system in Michigan, a move Sheen felt would make the state friendlier to businesses.

“We can lower the cost of doing business here. We’ve got to give people a reason to come here,” he told the Metro Council last month. “If you create a favorable atmosphere for businesses, they will come here. We’ve got to have a vibrant private sector.”

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