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Michigan Business Tax Policy

Michigan Business Tax Policy. ASPA/MICAP Conference September 30, 2011. History of Michigan Business Taxes. Business Activities Tax- 1953-1967 Corporate Income Tax- 1967-1975 Single Business Tax- 1976-2007 Michigan Business Tax- 2008-2010 Corporate Income Tax- 2012-?. Advantages of SBT.

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Michigan Business Tax Policy

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  1. Michigan Business Tax Policy ASPA/MICAP Conference September 30, 2011 R. Kleine 9/2011

  2. History of Michigan Business Taxes • Business Activities Tax- 1953-1967 • Corporate Income Tax- 1967-1975 • Single Business Tax- 1976-2007 • Michigan Business Tax- 2008-2010 • Corporate Income Tax- 2012-? R. Kleine 9/2011

  3. Advantages of SBT • Stable- largest decline was 14% (1981) • Treats labor and capital equally • Does not discriminate based on type of organization • Provides good measure of benefits received by business from public services • Low rate minimizes interference with business decisions R. Kleine 9/2011

  4. Disadvantages of SBT • Complicated • Unique in U.S. • Tax on compensation not understood • Subtractive method of calculation would have likely reduced criticism R. Kleine 9/2011

  5. SBT as % Private GDP R. Kleine 9/2011

  6. Advantages of MBT • Favorable treatment for small business (gross receipts $20 million or less)-1.8% of business income • Stable (profits 30%, gross receipts 70%) R. Kleine 9/2011

  7. Disadvantages of MBT • Complicated- too many credits • Higher rates than SBT- 6% on business income compared with 1.9% for SBT • Surcharge very unpopular R. Kleine 9/2011

  8. Advantages of Corporate Income Tax • Widely used • Business only pays when profitable R. Kleine 9/2011

  9. Disadvantages of Corporate Income Tax • Unstable- down 34% in 73-75 period • Favors labor over capital • Discriminates based on form of organization • Penalizes efficiency • Subject to manipulation- voluntary tax • Rate more easily increased than SBT or MBT • 95,000 fewer businesses pay than under SBT and MBT-41,000 now pay R. Kleine 9/2011

  10. Business Tax Options R. Kleine 9/2011

  11. Business Tax Cuts Will Not Create Many New Jobs • Business tax cuts offset by tax increases on individuals and families and spending cuts • Most of tax relief goes to non-mobile retail and service businesses- only 18% to manufacturers • Business taxes much lower than in 1990s • Business taxes are only 5% of state GDP and tax cut amounts to only 0.5% of GDP R. Kleine 9/2011

  12. Business Tax Cuts by Sector • Services- $575 million • Prof.& Tech services- $181 million • Manufacturing- $279 million • Retail Trade- $153 million • Wholesale trade- $139 million • Real Estate- $110 Million • Construction- $90 million • Finance & Ins.- $75 million • Other- $112 million R. Kleine 9/2011

  13. Michigan Business Taxes as % Total State Taxes R. Kleine 9/2011

  14. Corporate Profits Up Sharply in Last Three Years 2011 Q2: $1,934 Source: Bureau of Economic Analysis

  15. Michigan Proprietors Income(Millions)

  16. Contact Robert J. Kleine Great Lakes Economic Consulting www.greatlakeseconomics.com 9/2011 R. Kleine 9/2011

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