Pushing For Health Insurance Tax Cut

September 26, 2003
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LANSING — The Michigan Senate is taking a new look at an issue that's been addressed before: health insurance tax cuts.

The newest effort is a proposal to phase out the Single Business Tax on health insurance benefits for workers.

"Ironically, the more businesses pay in health care, the more they pay in taxes," said Andy Deloney, director of government affairs for the Michigan Restaurant Association.

"People are hammering on business owners to provide benefits, we're looked down upon if we don't provide benefits, yet at the same time we're going to be taxed for doing so."

The change would phase out the current tax over the next several years. The tax has the most impact on industries that hire many employees, like retailers, restaurants and manufacturers.

"We're in a situation where health costs have spiraled. Costs keep going up, and there's no relief in sight," Deloney said.

"If you look at certain segments of industry which are probably struggling the most and want to provide benefits, in a time where margins are already tight, it doesn't make sense to pay for it."

The tax is in place because it provides a more stable source of income for the state than if profits were taxed, which several lobbying groups prefer.

Anywhere from $80 million to $120 million is at stake with the tax.

"Even though the governor and administration have said they're worried about money, they've said they're willing to talk," said Chuck Hadden, vice president of government affairs for the Michigan Manufacturers Association.

"Our initial reaction is we're not certain how many businesses will actually benefit from the cut; our previous analysis has indicated it's not many," said Liz Boyd, the governor's press secretary.

She said the governor expects State Treasurer Jay Rising to undertake a complete analysis of the Single Business Tax. "We will continue to follow this."

At the same time, Hadden said phasing the tax out is one way to make the proposal more feasible. "They're looking for other ways to make this as easy to swallow for the state as possible."

The Small Business Association of Michigan estimates that several hundred thousand businesses would be affected by the change.

But the money the state loses in taxes wouldn't really be gone, argued the association's Barry Cargill.

"There probably would be no overall effect on the tax receipts of the state," Cargill said, explaining the tax break would lead to heightened economic development activity which would then cause more income tax to be collected.

Ron Sather and others agree.

"If you let a businessman keep more of his money, most are going to look for opportunities when they could turn around and put it back into their businesses," said the president of Four Flags Area Chamber of Commerce.

"Ultimately it makes their business better — it can lead to more hiring, business picks up — it's the old domino effect through the economy."

Hadden said many companies would use the extra money to increase productivity or upgrade systems.

"It's very possible that what could happen is that hiring more people could bring in more income tax; more revenue would come in."

Part of the reason why the proposal might be more successful this term than in the past is that the sponsor, Sen. Nancy Cassis, R-Novi, is also the chair of the finance committee.

"We've had hearings on it in the past, but I think this time we're going to be moving forward with it," Deloney said.

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