Our state legislature STILL has a lot of difficult decisions ahead of them, and perhaps most, that should have already been made. But the reality of what truly needs to be done has been might well have been put off by the uneasy feeling in the pit of their stomachs whether they are making the "right" decisions on cuts or tax raising.
I know that feeling.. After today it may return.
I had another article lined up for today, but this message needs to be repeated. And the time is critical.
If any of our state legislators have ANY question about what NOT to do, please take a look at something I had written in December of 2007 after the Michigan legislature, and the governor's pen infected this state with a confusing new business tax and subsequent surcharge.
Some understanding of the new tax has changed, but the felling could well be the same.
"I almost threw up...
By jgillman, on December 4th, 2007
My business model and the competition is such, that I must each year spend a few more dollars to make the same amount personally. Essentially increase my gross revenues, and make the same.
Imagine my concern (quite gut wrenching) when I found I was about to be hit with the most unsettling tax anyone could imagine. The new Michigan Business Tax "has a couple components to it" as explained by my accountant. "The first is the business profits," (I am paraphrasing) "the second," he continued, "is the 0.8% gross receipts tax, which will now be closer to a full 1% with the new surcharge.. sorry to be the bearer of bad news."
What my financial guru was telling me, was that the MBT was far worse for my particular business model than the SBT could EVER HAVE BEEN. That if I have to lower my margins to compete, I must RAISE my overall sales numbers, to make the same amount. By doing so, I would then incur a higher MBT, and ultimately be unable to function period. The accountant used the calculator available on the state's website to do the numbers, and came out with a figure which represented about 16% of my personal income.
16%.... I couldn't imagine a 16% state tax levied on anyone.. add to that the 4.35% std state tax, 28% top marginal rate, and 15% self employment, and that means 63% is gone in taxes before I draw anything. Anything I have left is taxed with a 6% sales tax, excise, and other costs; Insurance, property taxes etc.. That 16%... of my income is essentially what my wife and I live on. Now it appears in jeopardy.
I was sick. I went home and sat for about a half hour shaking..
Then I called my competitor. I then called another competitor. I made a few calls and started planning my exit from being in business. I started thinking of how to move out of the state I love because some thieves in Lansing haven't the faintest concept of economics. One of my competitors wondered aloud how insane that kind of tax was. I agreed.
Then I did what people need to do more regularly.
I called my representative's office. I spoke to an aide, explained my problem, and asked if our guy knew what the impact of this (MBT) tax was. He explained my call wasn't the first on this topic. That apparently, I fall into another category which will limit my liability.
I make under $180K, My gross receipts are less than $20mil, and the business net revenue is less than $1.3mil. This puts me in a "small business" category. He insisted this is the case, as he had JUST confirmed with the State tax policy analyst.
Any ONE of those three items can mess up your world however. And though for the moment, this news was a bit therapeutic for me, it still doesn't help some of those who are just a little TOO HIGH in any of the three categories, because they are trying to remain competitive in the national or international markets.
As an aside, it should be noted, my accountants are skeptical of the news from my rep's offices. The uncertainty in the accounting circles is troubling so close to the time when we need to plan for such a drastic change. My ability to keep a viable business in Michigan is unsure. It is a whole new motivation to write, when the harshest possible reality is staring you down, and not just an abstract (albeit true) ideology.""
Ultimately in 2008 I discovered that MY business model wasn't quite as targeted as some. There were other parts of the MBT that were not as well understood. A relief for me, as it turns out, was a disaster for many manufacturing concerns (you know the smaller non union ones which are the best job creators) and have caused many to fold or move in that short time. Creation of wealth (building things and adding value) is especially hard hit.
Gentlemen and ladies of the Michigan legislature, please understand this state would be far better off without any additional complications, and any posturing now, should be with an eye on ultimate simplification of the taxation code. Across the board cuts are appropriate, but please do not consider any funded program "off limits." At some point it must be understood that a state that has been drained of its operating capital can no longer provide what might now be seen as untouchable.
Your responsibility is not to save us from ANY pain, but distribute it in an appropriate manner that does not further punish the very job creators who are expected to provide the very recovery we seek. A bill on the Governors desk MUST be signed. If she will not, then let HER fail us one more time, as she is practiced at it. Just make sure YOUR part of it, is not that straw which breaks the will of Michigan business to remain here..
