Does Granholm Hate Michigan?
The Michigan economy has not been running on all four cylinders lately, and if Gov. Granholm gets her way, Michigan will be sent to the economic scrapyard. Gov. Granholm has proposed a 2% service tax for Michigan businesses, and yesterday, the Department of Treasury released more details about the proposal. Unfortunately, the service tax is bad news on many levels. One problem is that services are intangible, and as a result, geographical boundaries are irrelevant. For example, software development can be performed almost anywhere, and it doesn't matter whether it is performed in Michigan or in Alaska. If a company is looking to purchase software development services, and they face a choice of paying $10,000 to someone in Alaska, or $10,200 to someone in Michigan, then it is likely that they will go with the cheaper bid.
Another problem is that a service tax is inherently different from a sales tax, because a work product can be taxed multiple times. For example, in a large contract, you might have multiple levels of subcontractors, from the lawyer managing the contract agreement, to the technical writer writing the documentation. A service tax will affect each layer in the procurement chain. Whereas for sales taxes, businesses are exempt from paying sales taxes on items that they use as material to sell to someone else.
If the service tax is implemented, Michigan will be crippled in its attempt to rid itself of the scourge of the auto industry and move to a diversified service and technology economy. Are you looking for an accountant? The one in Ohio will be cheaper. Are you looking for someone to write custom software? Perhaps you should go with the developer in Virginia.
If the Michigan tax base is really in that bad of shape, and there is nothing else to cut spending on, then there is a simple solution. Raise income taxes. I would suggest also increasing the Michigan exemption so that this action wouldn't be as negative to the poor. Michigan citizens are very reasonable people. If we know that we don't have enough money to pay for roads, police, and firefighters, then we'll dig deep and pay more taxes. But if the state is looking to give a handout to Detroit, spending money on "Promise Zones", or giving $100 million to the alternative energy sector (mentioned in Granholm's state of the state address), then go back to Lansing and come up with some better ideas, since they are non-starters.
On a side note, has anyone noticed how Michigan citizens voted to repeal the Single Business Tax, and now the state wants to implement the Michigan Business Tax?
Another problem is that a service tax is inherently different from a sales tax, because a work product can be taxed multiple times. For example, in a large contract, you might have multiple levels of subcontractors, from the lawyer managing the contract agreement, to the technical writer writing the documentation. A service tax will affect each layer in the procurement chain. Whereas for sales taxes, businesses are exempt from paying sales taxes on items that they use as material to sell to someone else.
If the service tax is implemented, Michigan will be crippled in its attempt to rid itself of the scourge of the auto industry and move to a diversified service and technology economy. Are you looking for an accountant? The one in Ohio will be cheaper. Are you looking for someone to write custom software? Perhaps you should go with the developer in Virginia.
If the Michigan tax base is really in that bad of shape, and there is nothing else to cut spending on, then there is a simple solution. Raise income taxes. I would suggest also increasing the Michigan exemption so that this action wouldn't be as negative to the poor. Michigan citizens are very reasonable people. If we know that we don't have enough money to pay for roads, police, and firefighters, then we'll dig deep and pay more taxes. But if the state is looking to give a handout to Detroit, spending money on "Promise Zones", or giving $100 million to the alternative energy sector (mentioned in Granholm's state of the state address), then go back to Lansing and come up with some better ideas, since they are non-starters.
On a side note, has anyone noticed how Michigan citizens voted to repeal the Single Business Tax, and now the state wants to implement the Michigan Business Tax?
posted by David at 2/14/2007 10:32:00 AM
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