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MiBiz
Governor Falls Short on Both Structural and Tax Reforms

3/1/2010

Governor Granholm unveiled her proposed 2010-2011 budget at the State Capitol on 1/11/10 to a joint meeting of the House and Senate Appropriations Committees. Although her proposal includes both structural reforms and tax reforms, it simply is not aggressive enough — or fast enough — to change the Michigan business climate. We cannot afford, as a state, to wait another two or three years for the dramatic reform we need now to become competitive in the global economy.

Mike Johnston is vice president of government affairs for the Michigan Manufacturers Association. He may be reached at 517-487-8554.

The Governor’s budget proposal has been soundly rejected by the business community as it addresses only one third of the current $1.7 billion budget deficit through a combination of cuts and reform measures totaling $566 million. A joint letter sent to the Governor by a 19-member coalition of business organizations, including MMA, declared disappointment that the plan is a short term solution to a long term problem that puts off necessary spending reforms for future policymakers to address. The coalition has been strongly advocating for making structural reforms, first, before discussing how we fund the system. Once revenues are raised for a particular program, the incentive to reduce costs is lost, so structural spending reforms must be made before new revenues are delivered to a program. We need more cost reductions in state government than the Governor proposed.

As for tax reform, the Governor’s plan does heed MMA’s call for elimination of the job-killing surcharge on the Michigan Business Tax (MBT). It would also phase down the onerous gross receipts tax, which is high on MMA’s tax reform list. However, like the government spending reform measures in her plan, both of these tax reform measures fall short of the goal of making Michigan economically competitive now. The MBT surcharge would be phased out between 2011 and 2012, continuing to be a competitive barrier for Michigan manufacturers to bear for two more years. The gross receipts portion of the MBT would also be reduced through a delayed phase-out of only 0.1 percent in 2012 and 0.1 percent in 2013 — half as much as the tax reform plan supported by MMA.

In January, Senate Majority Leader Mike Bishop released a reform plan that would eliminate many of the barriers to cost savings embedded in statute and state policy. As outlined in MMA’s column last month, his proposal tracks closely with reforms that the Association actively advocated for since last year. The MMA-supported plan would cut over $2 billion out of next year’s budget, as compared to the $566 cut in Granholm’s plan, through a series of reforms that cover six key areas including public employee healthcare and compensation, local police and fire, k-12 spending, Medicaid spending and government efficiency.

MMA applauds the Governor for recognizing the need for both structural spending reform and tax policy reform, but her plan simply offers too little in cost savings and too little tax reform too late to turn our state’s economy around. We need a plan that will drive down the cost of government and provide substantial tax relief to job providers. For investors to bring high economic multiplier-effect manufacturing jobs to Michigan, we need a game-changing plan that will attract them now.

It’s time to re-write the rules, so Michigan can win again. We have some of the most highly-trained and experienced workers in the world. Michigan’s largest sector remains the manufacturing sector, which provides tremendous opportunity for economic growth. We have the home-team advantage of having a strong supply chain that new manufacturers can easily tap into. But we must first drive down the cost of doing business in Michigan to be able to attract new manufacturing investment and retain the strong manufacturing base that we already have. Industrial investment is the engine that drives our state’s economy and provides jobs for Michigan families.

MMA urges the Legislature to pass substantial structural reforms before the budget is adopted for 2011. MMA’s 2010 Structural and Economic Agenda outlines several solutions. We also believe a tax reform plan that eliminates the MBT surcharge and substantially reduces the gross receipts component of the MBT this year is critical to putting Michigan on a path to prosperity.

We will work with the Governor and Legislators from both parties and both chambers to discuss the importance of enacting more aggressive cost saving structural reforms first, and then implementing tax reform at a pace that will improve Michigan’s competitiveness. Michigan manufacturers have been implementing cost saving reforms for more than a decade. It’s time for state and local governments to do the same, to become competitive in the global economy and create jobs for Michigan families.

MMA’s 2010 Structural and Economic Reform Agenda can be downloaded from the MMA website at www.mma-net.org.

This article appeared in the March 2010 issue of MiBiz, read by upper management executives in West and Southwest Michigan. Print subscriptions are free to qualified individuals who are employed in West and Southwest Michigan. For further information about MiBiz Network, see the MiBiz website.

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