Friday, September 18, 2009

The Michigan Fair Tax Looks Fairly Good

It is time we begin to rethink our Michigan tax structure if we wish to create a better business climate to attract and grow jobs in the State. My listening tour with the Michigan Chamber of Commerce, National Federation of Independent Business, Michigan Farm Bureau, and the organizations representing the realtors, bankers, home builders, restaurant owners and the associated builders and contractors all echoed the same message - we need a more business friendly tax structure.

More specifically, we need to fix the Michigan Business Tax (and the accompanying 22% surcharge). They also mentioned we need to reduce or streamline the regulation of businesses in the state – with the initial focus on the permitting processes performed by the Department of Environmental Quality - but that is another subject which deserves its own posting.

Rather than tinker around the edges, making minor changes that don't really address the problems, we need to take a hard look at the "Fair Tax" proposed by the

Their proposal would:
  • "Replace Michigan’s current complex and unfair tax system with a simple retail sales tax.
  • Eliminate current sales tax, personal income tax, Michigan Business Tax, Personal Property Tax, 6 mill State Education Tax on business and sales tax on all business purchases and replace them all with a simple retail sales tax.
  • Save MI taxpayers billions of dollars now being wasted in complying with the current tax code.
  • Significantly lower the cost of goods & services produced in Michigan by removing the cost of
    business taxes and tax compliance costs that are hidden in today’s prices.
  • Make Michigan products more competitive with foreign products and return jobs to Michigan.
  • Provide a more stable revenue source and raise the same amount of money for Michigan government with the imposition of a fair/no loophole retail sales tax on all new goods and services with an effective tax rate of 0 - 9.75%.
  • Return to MI families 100% of the sales tax up to the poverty level by monthly “prebate” payments to all Michigan citizens’ households. No MI citizen will pay taxes on the necessities of life.
  • Constitutionally guarantees revenue sharing."

I have long favored a consumption tax because it does not discourage earning, saving and investing. The Fair Tax also has the virtue of being visible, a virtue the value added tax does not possess.

At a federal level, to reduce deficits, I fear significant tax increases will be imposed. In an attempt to avoid discouraging earning and investing, there will be a strong push for a value added tax as an alternative. A Fair Tax would be a much better alternative, due to its visibility. Otherwise, a value added tax would be too easy to creep up and up, similar to the 1% income tax initially imposed.

I am an announced candidate for State Representative for the 55th Legislative District, which stretches from Pittsfield Township south through Whiteford, Bedford and Erie Townships on the Ohio border. I would expect significant opposition from the retail business community to a Fair Tax imposed in Michigan in the absence of a similar tax in Ohio, fearing loss of retail sales in Michigan to nearby Toledo, the city many in those township already are more oriented to than Michigan. This would especially be true on high cost items, such as automobiles, furniture, etc.

I have asked the Michigan Fair Tax Organization the following: What are the considerations here? Countervailing arguments? I can see that the retail businesses would avoid the MBT and its hated surcharge, and personally avoid the current Michigan income tax, but would the net effect be negative for these border retail businesses?

If I can get satisfactory answers to these questions, it would appear that the Fair Tax is something highly desirable. (Of course, if a Fair Tax were imposed on a national level, this concern would be moot.)

Dr. Gary Wolfram, from Hillsdale College (you might remember him if you attended one of the Health Care Reform forums he spoke at) and Dr. Bruce Ikawa have prepared a report entitled "An Analysis of Fiscal Effects from the MI Fair Tax", and believe that the revenue stream from the Fair Tax is about the same as the current level from the various sources. Thus, it appears feasible. And, the indirect effects of a more favorable business tax climate could have enormous long-term favorable impacts. It certainly merits discussion and study. It may be a radical change, but we need to "think outside the box", to use a cliche'.

Comments? Concerns? Am I missing something?

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