By Robert Pembroke
In 2010, Rick Snyder, who eventually became governor of Michigan, promised tax relief to Michigan’s businesses. Gov. Snyder delivered on his promises. And now the Republicans are trying to deliver on their campaign promise of tax reform nationwide.
“Mr. Snyder’s first major undertaking with his Republican legislature was to replace the cumbersome state business tax with a 6 percent corporate tax and trim the individual rate to 4.25 percent,” said the Wall Street Journal in “The Michigan Comeback Story” on Sept. 25. “Michigan’s corporate-tax rankings jumped to seventh from 49th in the Tax Foundation’s business tax climate rankings.”
Let’s take a stroll down memory lane and set the stage for why it was so important for Michigan’s businesses to get tax relief. For decades, politicians, corporate executives and unions lost sight that the world is a very competitive place. There are very hungry folks out there and they’re going to do anything possible to put food on the table. Japan was the first to take away jobs from America and is being closely followed by China and India.
Michigan’s tax system was horrible, especially if you’re a small-business owner. It had been a “three-layered system” that they replaced with a value-added tax “but retained its flaws — namely, its pyramid structure and myriad carve-outs. New credits were created for Nascar, car dealers, film-production companies, large food retailers and warehouses. Businesses could even pocket $100,000 for contributing to zoos,” according to the Wall Street Journal.
For the last 7 1/2 years, Republicans have been campaigning on two major economic reforms: replace Obamacare and reform taxes. It worked, and now the Republicans control both houses of Congress and the presidency.
Let me ask you this question: Why sometime in the last 7 1/2 years didn’t the Republicans put together a plan to reform Obamacare and lower taxes?
It boggles my mind that the Republicans didn’t do that and maybe something else might be afoot. Do you think it’s possible that politicians play games with the electorate? Well, I do. As I have commented before, I see absolutely no difference between Republicans and Democrats at the national level. All they’re interested in is getting votes and putting silver and gold in their pockets.
Large businesses have used their lobbying money with great success. Between 2007 and 2012, they spent $5.7 billion on federal lobbying and campaign contributions. And they are getting an exceptional return on the money they have invested in lobbying. Small businesses have done a lousy job with their lobbying dollar and Washington is punishing them big time when it comes to taxes. It’s time for small-business owners to become involved with lobbying because the trade associations that they belong to are way too inefficient.
Gov. Snyder foresaw another benefit to reducing business taxes. “Capital investment and hiring have increased sharply. Two months after Gov. Rick Snyder signed tax reforms, job growth turned positive. In 2011 Michigan added jobs for the first time in six years, and it has since led the Great Lakes region in manufacturing growth,” the Wall Street Journal said.
Surprisingly, the tax reform bill that the Republicans released Sept. 27 is a step in the right direction. They are cutting the corporate tax rate to 20 percent, which will make a lot of sense. I read somewhere that the effective rate for a small-business owner on a Sub S corporation is 27.9 percent (they pay taxes as an individual), and if I’m reading the tax reform articles right, this would be a significant tax cut for small-business owners if they switch to C corporations.
But the Republicans have made a major gaffe when it comes to the voters that put them in office. I cannot find any tax cuts that are meaningful for the middle class and if the ability to deduct state taxes from their tax return goes through, it means an increase in taxes to middle-class taxpayers. Bad mistake, GOP.
“You don’t pay taxes — they take taxes.” - Chris Rock.
Robert Pembroke is chairman of Pembroke Inc. and considers himself on a permanent sabbatical. He can be reached at pembroke894@gmail.com.