MBT Surcharge Repeal Could Create 27,900 New Jobs Through 2016

It’s probably no coincidence that the first bill (HB 4001) introduced in Michigan’s new Legislature is to repeal the 21.99 percent surcharge slapped onto the Michigan Business Tax in 2007. The surcharge is despised by the business community, and is seen as a job killer by policy analysts and politicians alike.

Moreover, most lawmakers know they were not elected to fiddle around the margins on tax and spending issues. Even Lansing insiders recognize that only bold strokes will suffice to get this state back on track.

Last year the Mackinac Center used a “Computable General Equilibrium” software model to estimate the impact of state tax policy changes. Economic models like this are used around the world, but this one — called the “State Tax Analysis Modeling Program,” or STAMP — is Michigan-specific.

We ran a STAMP projection to estimate what would happen if the Michigan Business Tax surcharge were repealed wholesale in 2011, all other things being equal. Repeal would mean a $523 million business tax cut, with state spending reduced to offset lost revenues.

According to the model, this would create more than 8,300 net new jobs in the first year. Greater investment and employment would positively compound each year thereafter and employment would increase by 27,900 by the end of 2016. STAMP projects that total investment in the state — including purchases of business inventory, non-residential buildings, equipment and software — would increase by more than $21 billion.

Although the state currently faces another significant budget deficit, cutting enough to balance spending and revenue while still eliminating the MBT surcharge is doable. For example, among other possible savings, Mackinac Center analysts estimate that every year state, local and school employees are granted $5.7 billion more in fringe benefits than their private-sector counterparts. Correcting this imbalance would leave the state with enough money to wipe out a $1.8 billion deficit, eliminate the Michigan Business Tax entirely, and leave an extra $1 billion-plus each year to fix the roads and save for a rainy day.

Eliminating the surcharge would also signal that Michigan’s political elite is finally prepared to cut taxes for all investors and entrepreneurs, rather than just a favored few chosen by political appointees.

This new legislation is a breath of fresh policy air if for no other reason it has a good chance of passing. Lawmakers who help shepherd this tax cut to final passage should be applauded for putting job providers everywhere back in charge of their own destinies. Ultimately, the tax relief will be good for jobs, individual liberty and the economy at large.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.