Governor Snyder Unveils Comprehensive Budget and Tax Reform To Move Michigan Forward 

As promised during the campaign, Governor Snyder has proposed a comprehensive plan to address Michigan's chronic budget problems and provide significant tax reform. The Governor called on the Legislature to take responsibility for a legacy of debt that has left Michigan's state, local, and public school budgets with significant structural imbalances. The Governor is proposing bold changes to use taxpayer dollars efficiently to provide government services, as well as creating a business climate that is competitive and conducive to job growth!

In a distinct break from the past, the Snyder team put forward a major budget overhaul including; a decrease in total state spending from the current budget, a budget that uses metrics, incentives, and a two-year outlook, and a call for public employees to share in the cost of healthcare the way private-sector employees do.

The tax reform includes repeal of the Michigan Business Tax, to be replaced with a 6 percent Corporate Income Tax (CIT) resulting in business tax relief of $1.8 billion. The 6% CIT would immediately end the unfair double taxation of S-Corps, Partnerships, LLCs, and Sole-Proprietorships experienced under the MBT. These 95,000 job providers would no longer file under the main business tax, but would simply continue to pay through the state's personal income tax at the rate of 4.35. Tax reform would also include changes in the personal income tax to remove the current exemption for pension income, eliminating the Earned Income Tax Credit, and modifying the homestead property tax credit.   

Click here to view the Michigan Chamber's new release on Gov. Snyder's Budget Message. For more information on Gov. Snyder's recommended budget, click here. An overview of Snyder/Calley's tax reform plan is also available here.
 

President Obama's budget proposal for Fiscal Year 2012 was officially released last week. The budget provides for two years of relief from interest and principal on loans taken by states, such as Michigan, to pay unemployment insurance (UI) benefit -- but it is also tied to increases in UI taxes on employers for years to come.  This proposal, which has been described by Congressman Dave Camp (R-Michigan) and others as "$1 of relief now for $7 in tax hikes later," is not a proposal the Michigan Chamber can support.

We agree with the President that relief is necessary. In fact, Michigan's employer-financed UI system currently owes over $3.7 billion to the federal government and, without relief, Michigan employers are expected to pay over $240 million in higher UI taxes in 2011. However, the President's proposal comes with too many long-term strings attached. In particular, the proposal would increase the federal unemployment insurance (FUTA) taxable wage base (TWB) from $7,000 to $15,000 in 2014 and permanently index the TWB to growth in wages. It would also decrease the FUTA TWB to 0.38% in 2014. However, the net effect of the short-term relief with the increase in the taxable wage base would cost employers a net $58.5 billion in payroll taxes over 10 years.  

The increase in the federal taxable wage base would automatically trigger an increase in the state's taxable wage base from $9,000 to $15,000 because federal law requires the state's taxable wage base to meet or exceed the federal level. The Michigan unemployment tax is determined by multiplying the taxable wage base of each covered employee's wages paid in each calendar year by the employer's own unemployment tax rate (i.e., rates range from 0.06% to 10.3%). The net effect of the increase in the state's taxable wage base is not known at this time but here is an estimate for an employer with 50 employees paying a 4.5% experience rate. Please note that this estimate will vary significantly from employer to employer.   

Today: 4.5% rate x $9,000 TWB x 50 employees = $20,250 in state UI taxes.
Under the President's UI Proposal (2014): 4.5% rate x $15,000 TWB x 50 employees = $33,750 in state UI taxes.

As you can see, the President's proposal is a net loser for Michigan businesses. The Michigan Chamber will continue to aggressively advocate for solutions that improve the UI system and reduce debt.

Please contact Wendy Block, Director of Health Policy and Human Resources, if you have any questions at 517-371-7678 or wblock@michamber.com.