LANSING — Republican legislators’ proposal to completely eliminate the Single Business Tax on employee health benefits will become part of a broader legislative debate on restructuring business taxes in Michigan.
In offering a counter to Gov. Jennifer Granholm’s bid to overhaul the state’s business tax structure, Republicans in Lansing see removing health benefits from the SBT formula as one way to lower the tax burden on business and help employers better afford employee health coverage.
State Rep. Jerry Kooiman, R-Grand Rapids, said the proposal is “the first of many” initiatives that Republicans plan to roll out as they seek to improve the state’s business climate to encourage new business investment and job creation.
“We are going to kill the ‘health-care’ tax,” Kooiman said last week as GOP lawmakers around the state unveiled the proposal. “We believe this proposal is common sense and a badly needed change to our current tax code.”
Under the current law, enacted in 2003, the SBT as it applies to health benefits will fall 50 percent by 2007. In proposing a complete elimination of health benefits from the complex SBT formula by 2006, GOP lawmakers have added a new element to the debate when the Republican-controlled Legislature begins weighing the Democratic governor’s restructuring plan that was unveiled late last month.
Rep. Fulton Sheen, R-Otsego and chairman of the House Tax Policy Committee, said lawmakers would roll the proposed removal of SBT on health benefits into the broader tax-restructuring question.
Health benefit taxes under the SBT presently generate about $33 million annually for the state, a small amount of the overall tax revenues the state receives.
Still, any savings on the SBT that the GOP proposal would generate is money that employers can better spend elsewhere, whether on capital investments, worker training or research and development, said Bob Roth, the president of RoMan Manufacturing and Engineering in Grand Rapids, and the 2004 board chairman of the Grand Rapids Area Chamber of Commerce.
RoMan Manufacturing spends about $1 million annually on health benefits for its 170 employees, Roth said. The company’s cost to provide health coverage accounts for about 4 percent of its total cost structure.
Removing the SBT on health benefits is one way the state could help ease what Roth calls a “pretty significant tax burden on our company.”
“We need all the pieces to come together,” said Roth, whose company hosted one of four press conferences the GOP held last week across the state to unveil the SBT proposal.
The proposals from the governor and GOP lawmakers come at a time when the state continues to lose jobs and suffer fiscally and as employers struggle to cope with the rising cost of providing employee health coverage, which has risen in each of the past five years at double-digit rates.
The combination makes the timing right for major changes in the SBT, Sheen said.
“Crisis breeds one thing — opportunity, and that is where we are at today,” Sheen said. “We are in a health-care crisis and we are in a jobs crisis and we have a bill that addresses both.”
In West Michigan, the average cost of a two-person health plan grew more than 56 percent from 2000 to 2004, from $399 to $626 per month, according to the 2004 annual survey of health-care costs conducted by The Employers’ Association and the Alliance for Health. The monthly average cost of a family health plan rose more than 67 percent in the four-year period, from $442 in 2000 to $742 in 2004.
Those average premium costs identified in the survey reflected alterations that employers made to their benefit packages to mitigate rising premiums.
Removing the SBT from health benefits not only provides some tax relief for employers, but should make employer-sponsored health coverage a little more affordable and may bring companies that have dropped benefits back into the insurance pool, said Tricia Kinley, director of tax policy and economic development for the Michigan Chamber of Commerce. Kinley called the proposal “a great policy on a number of different angles.”
“The bottom line is, it is much needed tax relief,” Kinley said. “It’s a friendlier tax environment and provides incentives for people to give health care to their employees and to continue health care.”