by Gongwer News Service
March 13, 2009

As lawmakers sifted through budgets and wrangled over whether to cut taxes and hold onto services or raise taxes and threaten to squeeze out people who are fed up, an age-old chicken-and-egg battle between Democrats and Republicans on how to keep the coffers filled is taking on new steam.

In this example, let’s call taxes the chicken and services the egg.

Democrats said this week during votes on bills to reduce taxes on homes, cars and some businesses that while they’d like to reduce tax burdens, the already underfunded budget can’t allow it without threatening vital services.

Hence, they can’t take away any more chickens without depleting the supply of eggs.

However, Republicans argued that if legislators let people keep their money, they will infuse it back into the economy, turning the argument on its head that the egg is the money people make and the services are the chickens that come from it.

Getting away from farm analogies, one might imagine, as Sen. Nancy Cassis (R-Cassis) did, that during this economic crunch, politics is war.

When Democrats didn’t support SB 69 and jokingly accused her committee of being financially irresponsible by approving the bill (which boosts the top limit on chief executive salary for a small business to retain the small business credit under the Michigan Business Tax from the current $180,000 to $210,000), she said they were engaged in class warfare.

That bill, which was the most controversial in a handful of bills that actually returned to some tax concepts enacted or experimented with several decades ago, also extends the MBT’s current entrepreneurial credit for three years through 2013. In addition, it drops the number of jobs a company would have to create to be eligible for the credit from 20 to eight. Together, the provisions could cost the state as much as $47 million in revenue.

Democrats did not object to expanding the entrepreneurial credit, but to hiking the top pay element. Most people can make a living on $180,000 a year, Sen. Gilda Jacobs (D-Huntington Woods) said, and the $210,000 level would be $60,000 more than the average salary of a CEO, let alone being more than four-times the salary of a police officer.

Sen. Michael Switalksi (D-Roseville) was responsible for the joke about the members of the Senate Finance Committee becoming financially irresponsible, saying perhaps the Appropriations Committee members should oversee the tax committee and the Finance Committee members could oversee spending of the federal stimulus money.

Ms. Cassis, chair of the Finance Committee, said she never expected to hear such “class warfare” in the legislature.

“I heard this at the national level,” she said. “I absolutely never expected to hear it here.”

With the credit expanded, companies would be able save tax money and expand operations, adding jobs, Ms. Cassis said.

Before the bill was approved, Democratic efforts to roll the maximum salary benefit back to $180,000 failed, as did a proposal to tie-bar the credit to the three foreclosure bills the House passed on Wednesday (HBs 4453–4455).

Among other bills that fueled the battle was SB 191, which would boost the homestead property tax credit for the first time since the 1970s when the credit was established to help offset what were then considered sky-high property taxes (well before the property tax cuts driven by the passage of Proposal A in 1994).

Under the measure, the maximum credit would be increased from the current $1,200 to $1,300 (with an additional $50 available to senior citizens).

In addition, the maximum household income that could qualify for the credit would increase from the current $73,650 to $83,650. The maximum credit would be cut by 10 percent for each $1,000 in household income above $83,650 until the credit was phased out.

The total cost to state revenue of all three elements would be $80.6 million.

One Democrat asked if, in the current unemployment crisis, those earning $83,000 were “the ones hurting out there?”

But Ms. Cassis said the question that should be asked is, “how much does it cost to live in the state.” Earlier, she had said if the property tax credit had been adjusted with inflation over the 30-year period, the maximum credit would be more than $4,000.

Despite the complaints, SB 191 passed overwhelmingly 35-2.

SB 201 also takes a gamble that reducing taxes will increase economic activity. The measure, which returns the state to the concept of sales tax on the difference between the value of a trade-in and a new vehicle, last tried in the 1980s, could, depending on total sales, cut revenues by $145 million. Of that, $106 million would be a cut to the School Aid Fund, and revenue sharing would be cut by $24.2 million.

The bill extends the same concept to boats, earth-moving equipment and snowmobiles. Democrats unsuccessfully attempted to amend the bill to take the issue back to cars and boats, saying the bill had gone beyond its original good idea.

But Sen. Alan Sanborn (R-Richmond) said expanding the concept beyond cars and boats had taken a good idea and made it better.

While lawmakers have agreed on some measures meant to cut the budget at the outset and stimulate the economy in the long run (the Hire Michigan First legislation, for example, which was passed this week and is projected to dole out $900 million in state incentives to businesses that hire Michigan companies first), there are many more issues that continue to ruffle feathers.

Ms. Cassis, for example, takes every opportunity to mention the film incentive package passed last session as unregulated and over the top whenever Democrats question why she wants to approve a tax cut in the Finance Committee.

Especially with Governor Jennifer Granholm’s announcement this week that she will have to slash her budget projections yet again, several more bills aiming to reduce tax liability will see the spectacle over government and taxes versus services and pocketbooks rage on.

For nearly 50 years in Michigan, Gongwer News Service has provided independent, comprehensive, accurate and timely coverage of issues in and around Michigan’s government and political systems. For subscription information, including a free trial, visit Gongwer online.