As if we need another reason to fire our State Representative

Phil Power hit the nail on the head with his column today on the irresponsible move by the Legislature to repel the Single Business Tax in the Livingston County Daily Press & Argus. Power has been a long-time observer of politics, education and economics as a journalist, publisher and owner of one of the largest newspaper chains in the state, including the Press & Argus. He is a former University of Michigan Regent, and he is also the founder of The Center for Michigan, a moderate think tank. The point is he knows what he’s talking about.

Michigan's state budget could face a whopping $3 billion deficit (out of a $9.3 billion General Fund) as a result of the Legislature's repeal of the Single Business Tax.
That's because the lawmakers who did that this summer acted without the slightest idea of what to replace it with. And there is no guarantee they'll get one in place before the tax expires.

And if you need further proof of a lack of coherent political leadership these days, you need only look at two contradictory proposals on the November ballot — both of which might pass. (Just one more reason we need to fire our current state Representative.)


Let's look at the ballot proposals first. One, called "Stop Over Spending" (SOS), would constitutionally restrict the amount the state can spend, period. The other, called "K-16," seeks to require more state spending for schools. For one thing, most government experts think sticking spending decisions into our Constitution is a bad idea.

As for the Single Business Tax — it now seems the Legislature, in its urgency to repeal the unpopular tax (and pander to the voters), (He must know Ward’s record) forgot it takes some time to properly set up the system to administer and collect any replacement business tax. The SBT, which produces around $1.9 billion in state revenue, is set to expire on Dec. 31, 2007. As of now, the current lawmakers are supposed to solve that problem in a "lame-duck" session after the Nov. 7 election.

More realistic observers figure it will take the Legislature months and months to hammer out a new state business tax.

And on top of that — veteran tax experts say it takes a long time to develop the necessary systems to collect the new revenue.

Joseph J. Tomczyk, director of John Bernard LLC, a tax advisory firm in Royal Oak, says, "it certainly will take at least a year, probably closer to 18 months to put together all the systems required to make the tax work." He knows something about this; he is a former staffer at the state treasury department. Tomczyk says the state has to understand the language of whatever bill the Legislature passes and the governor signs. Who's taxed? How is the tax to be computed? What about estimated payments? Pre-payments?
Then there is the matter of forms and systems. How to process and account for the returns? What about delinquent taxpayers and follow-up, not to mention audits?
The bottom line is that the state is already facing a billion-dollar "structural" budget deficit, which means that the funding systems now in place automatically turn up that much of a shortfall, every year.

If the Legislature follows its traditional work pace — which is very, very slow — it won't get around to passing a replacement business tax until late 2007. If it then takes 18 months for the Department of Treasury to sort out the tax-collection systems, the state could be facing a sky-high deficit of nearly $3 billion or so (the $1 billion current deficit plus nearly $2 billion in business tax shortfall) for the fiscal year that starts in October 2007.

Michigan's Constitution forbids any deficits at all, so some time next year the Legislature might find itself having to cut state spending by around one-third! You may be certain neither candidate for governor nor any of the folks running for the Legislature are going to talk much about this problem. But we could be facing a financial train wreck, thanks to the obsession with cutting taxes above anything else, especially sound government policy.