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MI group: Slash business taxes, expand sales tax

A group of Michigan business executives said Wednesday it's encouraging lawmakers to begin looking at restructuring taxes and improving the state's business climate this year.
/ Source: The Associated Press

A group of Michigan business executives said Wednesday it's encouraging lawmakers to begin looking at restructuring taxes and improving the state's business climate this year.

Business Leaders for Michigan would like to slice the state's main business tax roughly in half. The lost money would be replaced by extending the state sales tax to a host of services, while dropping the sales tax rate from 6 percent to 5.5 percent.

The group also wants to reduce the size of the state government work force by 5 percent to 10 percent, shrink employee benefits and eliminate a 3 percent pay increase for most state workers set to take effect Oct. 1. State employees got no pay increase two years ago and a 1 percent raise last fall.

Group leaders said the proposed changes are painful but necessary.

"We're in a situation where Michigan is going to have to take some bold steps," said David Joos, CEO of CMS Energy. "We've got to make some changes."

The suggestions, first unveiled last September, are among the ideas being floated by a number of groups as Michigan looks for ways to deal with a deficit that could be at least $1.6 billion when federal recovery money largely disappears. State coffers also will see the drainage of hundreds of millions of dollars in tax breaks.

The outlook for 2010 is a pattern seen often in recent years, as the state has struggled to make spending and falling revenue match up. Democratic Gov. Jennifer Granholm, Democrats who run the House and Republicans who lead the Senate have settled on patchwork, temporary budget fixes mainly because they haven't been able to agree on longer-term solutions.

That has left the 2010-2011 budget mess unresolved entering a key election year when Michigan voters will pick a new governor and every one of the Legislature's 148 seats are up for grabs.

Groups such as Business Leaders for Michigan are starting to insist that solving the state's budget problems shouldn't wait for new officials to take office in 2011.

"It's a political year," said Doug Rothwell, Business Leaders for Michigan president. "It's an election year. We all realize that. But we can't afford to wait."

The group of 75 business and university leaders says the state can't just focus on cutting spending or increasing revenue. It also must remove barriers so school districts and local governments can save money by sharing more services, require public employees to pay a larger share of health care costs and change the way the state's criminal justice system works so prison costs can be brought down.

The group says its plan, which would eliminate the 22 percent surcharge on the state's corporate business tax and then reduce the overall business tax rate, would be revenue-neutral this year. But the state likely would collect more money from the sales tax in subsequent years.

Michigan could become more attractive for corporations if the business tax were reduced.

Other groups have suggested letting voters decide this year if they support a switch to a graduated income tax rather than the flat rate Michigan now has. The tax would be designed to bring in more revenue.

Granholm hasn't signed on yet to any particular plan, but she said last month in her year-end interview that she would support a "grand bargain" to revamp Michigan's tax structure if enough Republicans, Democrats and other groups are on board.

Just how far the governor is willing to go could be evident when she delivers her annual State of the State address Feb. 3 and delivers her proposed 2010-2011 budget to lawmakers a week later.

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Associated Press Writer Kathy Barks Hoffman contributed to this report.