Sign In | Create an Account | Welcome, . My Account | Logout | Subscribe | Submit News | Staff Contacts | Affiliates | Home RSS

Gov. Snyder's tax changes hit in 2012

January 3, 2012
the Associated Press

LANSING (AP) - Michigan Gov. Rick Snyder and Republican lawmakers pushed through a series of far-reaching tax changes in 2011 that will hand businesses drastically lower tax bills while raising the amounts low-income workers and retirees will pay as new laws take effect.

Many companies will see significantly lower tax bills or pay no business taxes at all in 2012, thanks to a switch from the Michigan Business Tax to a new 6 percent corporate income tax that kicks in Sunday and falls mostly on large corporations with shareholders. Businesses can expect to pay $1.1 billion less in taxes this year and $1.7 billion less in 2013, according to estimates. Two-thirds of companies will pay no income tax at all.

If the changes work as Snyder hopes they do, they could balance the tax burden more fairly between younger workers and retirees while helping to create jobs and push down Michigan's stubbornly high unemployment rate that in November finally dipped below double digits for the first time in three years.

Some worry the tax changes may simply take money from public education and state programs that $2 billion in annual business taxes paid for in the past, a move critics say could leave students with fewer educational opportunities and force cuts to everything from prisons to food and hospital inspections.

Even if companies hire more people, the economic boost could be canceled out by higher income tax payments individuals will have to make. By fiscal 2012-13, Michigan residents will be paying $1.4 billion more in income taxes than they do now, even though the income tax rate will drop from 4.35 percent to 4.25 percent on Jan. 1, 2013.

"The way that we paid for the change for the business tax was we increased the tax on individuals," former House Fiscal Agency director Mitch Bean said. "When you increase taxes on individuals, that's less money for them to spend, which has a negative effect on the economy."

Public pensions for those born after 1945 no longer will be exempt from the state income tax, and much more retirement income will be subject to taxation, adding up to an annual bill for retirees that will increase by $300 million even though exemptions on Social Security payments and military pensions stay in place.

The new law eliminates deductions for charitable contributions to food banks and public universities as well as a $600-per-child exemption and tax credits for adoption, stillbirths and farmland preservation. It also cuts the Earned Income Tax Credit by 70 percent, meaning 700,000 low-income working families with see their tax credits drop. The average family now will get $130 to $140 rather than $430 a year through the credit.

The nonpartisan Citizens Research Council concluded in a July report that the business tax cut likely will have a positive effect on business investment and Michigan's reputation in the business community. But it sees potential pitfalls as individuals pick up the tab through higher income tax payments, reducing their ability to spend in ways that would spur the economy.

"Because of the offsetting nature of these effects, any overall effect on growth, positive or negative, is likely to be small," the report concluded.

Terry Conley, a partner in charge of state and local taxes in the Southfield offices of major auditing firm Grant Thornton LLP, sees more reason for optimism. For most of the businesses his company serves, the new corporate tax will be a huge savings and likely lead to more hiring, he said. Conley noted Grant Thornton was "seeing a lot of relief in the retail sector, the general service sector and construction contractors in particular."

One client, an information technology company expects to see its $8 million state business tax bill drop to $1 million to $1.5 million in 2012.

"I've already seen the company forecast 500 new jobs in Michigan," Conley said. He notes that those jobs are likely to pay about $100,000 a year, enough to create a healthy demand for goods and services that should help spur economic growth.



I am looking for:
News, Blogs & Events Web