Lansing’s actual motivation was its own convenience.
Economic cycles made it difficult for the capitol’s bureaucrats to predict revenues. So, to insulate its budget process from economic peaks and valleys, Lansing elected not to tax business profits.
Instead, it concocted the SBT to impose levies upon business value: combined profit, payroll, fringes, interest and depreciation. The SBT went into effect in 1976, making life easier for Lansing and tougher for business. A good many legislators went blue in the face trying to convince businessmen why the tax was so good for them, but it was a hard sell.
To be sure, in profitable years, most businesses found the SBT beneficial.
Unfortunately, few high-profit years lay ahead. Stagflation began three years after SBT came into being. With orders collapsing and double-digit inflation driving pay and fringes’ costs out of sight, the SBT did its part to raise Michigan unemployment to the 20th percentile and to drive industry to other states.
Basically, the SBT focus on payroll and fringes rewarded layoffs and penalized hiring. SBT turned out to be a growth-prevention tax.
Since the ’80s, the Legislature has slapped enough Band-Aids on the SBT to render it almost unrecognizable. It’s also undergoing a very gradual phase-out: a drop of one-tenth percent per year as long as Lansing’s Rainy Day Fund is brim full — a remarkably convenient excuse for Lansing to keep drawing down the Rainy Day Fund.
But, that aside, inflation of manufacturers’ fringe benefit costs — namely group health care premiums that are rising at double-digit rates — suddenly are working the SBT’s old unvarnished magic upon employment.
It’s an old story. Inflation impacts the employer doubly by raising costs and increasing the taxes upon those costs. Meanwhile, added revenue disappears down the black hole in Lansing.
Pressure exerted by the tax on health care costs is not occurring in isolation. As The Right Place Inc.’s Manufacturers’ Council pointed out repeatedly this year, the most important segment of the local economy — manufacturing — is under unprecedented pressure from the Big Three, from subsidized foreign competition, from ruinous federal tariffs, from a justice system that provokes lawsuits at the drop of a hat, and from ill-conceived environmental regulations.
A Republican legislator has introduced a five-year phase-out of the SBT levy on health benefits. She seems to think the bill, which has gone down to defeat session after session, actually has a chance to pass this time.
It’s only another Band-Aid, but Lansing had better apply it because the capitol’s convenience has become an unaffordable luxury.
In terms of longer hours, reduced raises, higher co-pays, higher deductibles and larger shares of health care premiums, business and labor are doing more than their part to stay the course.
This would be a very good time for Lansing to straightforwardly embrace those same sacrifices.