What item does everyone use from birth until death?

Granholm's tax plan spreads out the pain
She'll also propose $400 million in spending cuts

February 8, 2007
BY CHRIS CHRISTOFF and DAWSON BELL

FREE PRESS STAFF WRITERS

LANSING -- Beginning June 1, Michigan consumers and businesses would pay a 2% tax on most services -- from movie and concert tickets to haircuts, auto repairs, lawyers and accountants -- under Gov. Jennifer Granholm's proposal today to balance the state budget.

State budget officials calculated that the tax on services -- they called it an excise tax rather than a sales tax -- would cost a family of four with an annual household income of $57,300 about $65 a year more in taxes.

Businesses would pay about two-thirds of the estimated $1.5-billion cost of the new tax. But they would get a $450-million break, compared with the expiring Single Business Tax, under Granholm's new Michigan Business Tax that also will be proposed today. Service businesses would pay more, and large manufacturers would pay less.

The bottom line: Businesses and individuals as groups each would pay about $500 million more overall with a new tax on services, a 5-cent-per-pack boost in the cigarette tax, a higher liquor tax and a tax on estates of more than $2 million.

Granholm's plan aims to solve Michigan's chronic budget deficits. The state is $800 million short of paying its bills based on spending projections through Sept. 30 and will be in an even deeper hole in the 2007-08 budget year without a combination of spending cuts and higher taxes.

Aides to the governor who asked not to be named said Granholm also would propose $400 million in spending cuts, but revealed no details.

Her plan will launch a bruising debate over taxes, budget cuts and the state's economy.

Republicans, who control the state Senate and could block any change in tax policy, generally said Granholm focuses too much on taxes and not enough on budget cuts.

Granholm's proposed tax on services would not be applied to health services, services purchased by governments and schools or advertising.

Granholm's replacement business tax would save $550 million a year for businesses headquartered in Michigan compared to the SBT, which expires Dec. 31. Out-of-state businesses would pay $100 million more.

The 6% sales tax on goods would remain, but purchasers of new cars would get a break under Granholm's proposal: The value of a trade-in would be deducted from the new vehicle's cost before sales tax is computed.

Bill Musial, operator of the William J Barbershop on Kercheval in Grosse Pointe Park, said taxing services like those he provides is a bad idea that will drive up prices without accomplishing its goal.

"It will be an administrative nightmare," Musial said. "My wife owns a pet supply store, and I've seen the bookkeeping she has to do. It's going to cost more to collect than they will be able to raise."

Liz Boyd, spokeswoman for Granholm, said the so-called Two Penny Plan is simple and fair.

"We believe it is worth two pennies to invest in Michigan's future by protecting health care, education and public safety," Boyd said. "The governor's plan invests in our people to give them the opportunity to be successful in our new economy."

Republican critics pounced on the tax proposals that were reported Wednesday.

They said a tax on services not only would hit low-income families, but also would be burdensome for businesses -- both those who pay and those who collect the tax -- and generally bad for the state's economy.

Senate Majority Leader Mike Bishop, R-Rochester, said the state should cut spending before it adds new taxes.

"It is highly irresponsible to promise new 'investments' with money we do not have, that would build bigger government we cannot afford," Bishop said in a prepared statement. "We have a responsibility to Michigan families to keep their taxes under control. Michigan currently has an operating budget of more than $41.8 billion.

"Before we consider the governor's proposed new taxes, there must be a serious focus on restructuring government to find revenue savings."

Senate Republicans had proposed a business tax plan that cuts taxes by $290 million.

Sen. Nancy Cassis, R-Novi, said she'll oppose Granholm's tax on services. Cassis chairs the Senate Finance Committee, which must approve any tax matter before the Republican-controlled Senate.

She said she's especially concerned about requiring businesses to pay taxes on services they buy from other businesses.

The Detroit Free Press-Local 4 Michigan Poll last week showed that almost two-thirds of Michigan adults prefer budget cuts instead of higher taxes.

Forty-six percent said they would support or could live with a sales tax on services, while 49% were opposed.

"I think once people understand how incredibly complicated the notion of expanding the sales tax to services is, they might have second thoughts," said Tricia Kinley, tax analyst for the Michigan Chamber of Commerce.

Tom Shields, a longtime political consultant in Lansing, said a 2% tax on services would require him to charge his clients nearly $200,000 in total service tax, based on his 2006 business volume.

"That's a lot of money," he said.

Rep. Steve Tobocman, D-Detroit, called Granholm's plan "right on point" and said the new House Democratic majority plans to move swiftly on her proposed budget cuts and tax plan.

"We've got to look for every cut we can make," Tobocman said. "At the same time, we need revenues to make investments to secure our future."

Some purchase from the top shelf, some from the lower.
Some use a little, and some use alot.


Answer: Toilet paper.