Michigan Fair Tax Proposal (2008)

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The Michigan FairTax Amendment did not appear on the November 4, 2008 statewide ballot as an initiated constitutional amendment. The measure proposed eliminating the Michigan Income Tax, the Michigan Business Tax, the Personal Property Tax, and the School Education Tax, replacing them with a 9.75% sales tax. The state sales tax is currently 6%.

Details of the amendment

In addition to replacing the Income Tax, Business Tax, and others with one state sales tax of 9.75%, other features of the Michigan FairTax included:

  • Sales tax would apply only to final sale
  • All business-to-business transactions would be exempt
  • One rate would apply to everyone
  • Tax withholdings and tax filings would be eliminated
  • A "prebate" would be provided—a monthly electronic payment to every legal household for the amount of tax on purchases up to the poverty level, based on household size—to rebate sales taxes paid on the "necessities of life" and to effectively "untax" the poor
  • Taxes would be shown on every sales receipt, rather than hidden in the prices people pay

Supporters

The initiative was sponsored by The Michigan FairTax Association. According to the sponsor's web site, "The current tax system is broken. It's complicated, easy to evade, and unfairly burdens the lower and middle classes. And, attempts to fix it have only made it worse."

Proponents said this tax was fair, because the more you buy, the more you pay in taxes. "So everyone pays fairly when they choose to spend." They said the FairTax would stimulate investment, economic growth, and job creation.

"Elimination of the Personal Property Tax, Gross Receipts Tax, and State Income Tax would make Michigan the least expensive, least cumbersome, easiest to comply with, and most competitive state in the nation. Manufactures will greatly benefit and many will relocate to Michigan in order to take advantage of the lower cost of doing business because of the favorable tax structure."[1]

Also supporting the amendment was Wayne County Taxpayer's Association, Republican Women's Federation of Michigan, the National Taxpayers Union (NTU), and the Small Business Association of Michigan.

Supporters said they hoped the proposal would gain momentum, in part by dissatisfaction with Michigan's newly enacted business-tax structure, which included large, unexpected tax increases that some businesses on January 1, 2008, with the switch from the single-business tax to the new Michigan Business Tax.[2]

"It is giving my proposal some legs," said State Rep. Fulton Sheen (R-Plainwell).

The Small Business Association of Michigan had long supported the national Fair Tax plan. "There's only more reason for that support today, when more and more businesses are finding, with horror, what the MBT is going to do to them," said Todd Anderson, SBAM vice president of government relations.[2]

Sheen said he believed a greater amount of tax would be exported to non-Michigan residents who came to or through Michigan and made purchases than would be imported from out-of-state companies that at the time paid MBT, despite fears voiced by spokespeople for the Michigan Chamber of Commerce.[2]


Opponents

At the time, few organized business groups had come out in support of the plan, and one major organization, the Michigan Chamber of Commerce, was backing away from the proposal. The chamber's board had not yet taken an official position, but its tax committee had recommended opposition.[2]

Tricia Kinley, the chamber's director of tax policy and economic development, said that while the MBT "looks to be turning out to be a disaster, with some very heavy tax increases across the state... we are very concerned that while the Fair Tax proposal sounds appealing, it would have some very negative consequences."[2]

Kinley said that eliminating the MBT would shift nearly $1 billion in MBT that's estimated to be paid by out-of-state companies onto Michigan residents, who would pay a higher sales tax to help make up the lost revenue.

"On the surface, it may sound great, but once you dig deeper, there are a whole lot of questions with it," said Tricia Kinley, a tax analyst with the Michigan Chamber of Commerce.

Kinley noted that a 6% service tax enacted in October 2007 prompted so much outrage that it was repealed Dec. 1. Under the FairTax, taxes on services would reappear, and at an even higher rate. She added that there are many questions about the tax rebate, which could cost the state billions of dollars. "It's only a matter of time before this gets really complicated and not at all simple," Kinley said. "We just have never felt that the numbers make sense."[3]

In an Opinion column in the Detroit News, Brian J. O'Connor wrote about the Fair Tax concept, speaking mostly about proposals for such a tax on a national scale, such as the one supported by former Republican presidential candidate Mike Huckabee:

A lot of economists like the idea of this kind of consumption tax—in theory. But in reality, almost anyone who can do math hates the Fair Tax.
Economists from the libertarian Cato Institute, the independent Brookings Institute, the nonpartisan Urban Institute and the bipartisan President's Advisory Panel on Federal Tax Reform all conclude that the Fair Tax is nothing but a fairy tale.
"It took me almost a month to understand this crackpot proposal," says Bruce Bartlett, a Treasury official in the administration of George H.W. Bush.
"They make really outrageous assertions about their proposal that are at the least untrue and more likely just plain lies," Bartlett says. "There's a lot of kooky stuff in there."[4]

Status

Supporters announced on July 7, 2008, that they had not collected enough signatures to get the measure on the November ballot.[5] Proponents needed to collect at least 380,126 valid signatures by July 7, 2008.

See also

External links

Additional reading

References