Pursue competitive options

April 26, 2010
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Your Business Journal editorial on April 12  titled "Naysayers can't deflect incentives' effectiveness" does not adequately address the opposing argument. You dismiss any such argument by stating "The Upjohn study also made a thorough analysis of the impact of MEGA vs. using the resources to cut Michigan's business tax." That is a false comparison. A true alternative comparison would be to eliminate the hated Michigan Business Tax, eliminate personal property taxes, eliminate the Michigan individual income tax and raise the sales tax to 9.75 percent applied to all new goods and services sold at retail with a generous exclusion sufficient to make it a non-regressive tax. Businesses do not pay taxes, people pay taxes. It is inescapable that every tax remitted by a business is embedded in the cost of every good or service sold and is, therefore, paid by the consumer.

This bold plan, one version of which is known as the Fair Tax, will create many more jobs than the current system of showering tax credits on a few favored employers at the expense of all other employers who have been here for many years and who must pay higher taxes to offset the revenue lost to tax credits. The worst aspect of using tax credits to attract a company to Michigan is that the political patronage system allows appointed bureaucrats and development personnel to pick and choose which companies are favored or excluded. The free market should make that determination, not political appointees.

Under this plan, Michigan will have the most competitive state tax structure in America. Other states will not be able to compete with us in attracting new businesses unless they adopt the same tax plan.  Manufacturers from other states will have all of their state taxes embedded into the cost of their products and services and will be less competitive here.  Conversely, Michigan goods exported to other states and countries will have a competitive advantage because they will not have the hidden cost of embedded state taxes. Existing Michigan businesses will grow and create more jobs; new businesses will flock here and will create new jobs. 

Workers will like it because they will get to keep all of the Michigan Income Tax currently being withheld from their paychecks at 4.35 percent. Now, it is gone before they ever see it. They can choose how much tax they pay by adjusting their consumption. In most cases, low and moderate income workers will pay much less in total taxes under this plan. Savers and investors will also mostly pay lower taxes. Who will pay more? Those who choose to spend all or most of their income. That's the way it should be.

Michigan cannot accept the status quo or make modest incremental changes to its tax structure and hope that and tax credits will attract enough new business to offset those closing or moving out. It won't help much to go from the 46th or 50th worst state to do business in to the 42nd worst. We need bold action to become the No. 1 most attractive state in which to locate a business. This plan will do it. I know of no other that will.

Donald L. Jakel
Caledonia

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