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Industry Insider

By Mike Johnston
VP of Government Affairs
Michigan Manufacturers Association
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Many claim that manufacturing is the “old economy” and that the industry is no longer what it used to be. But in reality, manufacturing remains the backbone of Michigan’s economy. As of November 2010, manufacturing provided 463,300 direct jobs for Michigan citizens. However, with the thousands of jobs and billions of dollars in economic investment the manufacturing industry provides to our state, Michigan manufacturers continue to pay a higher effective tax rate than the rest of the nation. This is clearly a tax policy mistake, since manufacturing remains the largest sector of the Michigan economy; it should be taxed at the most competitive rate compared to other manufacturing states.

MMA recently commissioned Ernst & Young to conduct a study regarding effective tax rates on manufacturers and other business sectors, and how these rates compare to national rates. Using 2009 data provided by the Michigan Department of Treasury, Ernst & Young economists Robert Cline and Andrew Phillips found that manufacturers on average are paying 29 percent higher taxes than the national average paid by manufacturers and compared to the average business in Michigan, manufacturers are paying 45 percent more.

If we want to retain our manufacturing base and attract new capital investment that will diversify the industry and boost our economy, we need to end the competitive disadvantages for manufacturers. The Michigan Business Tax, while an improvement over the repealed Single Business Tax, did not solve Michigan’s competitive tax rate problem. As the Ernst & Young Study clearly indicates, Michigan manufacturers pay at a rate far higher than our national competitors.

MMA’s 2011 Legislative & Regulatory Agenda provides an outline of policies that would help our state. For tax policy, we have a few specific suggestions:

1. Eliminate the personal property tax on industrial equipment. Most states have eliminated this tax, which leaves Michigan at a clear competitive disadvantage.
2. Eliminate the gross receipts component of the business tax because it shifts disproportionate burdens to manufacturers.
3. Eliminate the MBT surcharge. This was a late night legislative budget fix that resulted in a clear competitive barrier to job providers.
4. The new tax must recognize that not all sectors are the same and that manufacturing provides our state with large capital investments, hires highly skilled workers, and spends large amounts on research and development.

As important as taxes are to our competitiveness, restructuring our tax system alone will not fix Michigan. With per capita income far below the national average, ranking 37th in the nation, Michigan is now among the poorest 13 states. Add on a nearly $2 billion deficit for fiscal year 2012 and it’s clear there needs to be a system in place to identify spending problems and provide solutions with programmatic measures and benchmarking goals to reduce overall costs. We were pleased to hear Gov. Snyder call for a state dashboard of performance measures in his State of the State address. Michigan must first measure itself against other states whose manufacturing sectors are growing and those with a similar economic base and per capita income. It’s important for the state to measure all aspects of state government performance to identify where our government is not competitive.

As we compare Michigan’s performance with our competitor states, there are steps we can take to maintain Michigan’s manufacturing base and grow new jobs and investment. The Michigan Economic Growth Authority (MEGA) program has served as a valuable tool in creating long-term growth. For every dollar offered in credits, the private sector is investing $5.80 — nearly six times the amount the state is “investing.” It’s important for our state to continue to support economic development programs such as the MEGA program as it has proven to attract considerable investment with a high rate of return. Funding these important projects is an important priority in securing long-term economic success.

These are just a few of many recommendations included in MMA’s 2011 Legislative & Regulatory Agenda. Despite the ever-changing national and global economy — and the significant challenges that come with it — manufacturing has continued to remain the largest sector of our economy. Michigan has some difficult challenges ahead it, but with reinvention and recognition of the strength of the manufacturing sector, our state will thrive once again. We look forward to working with Gov. Snyder and the new legislature to make Michigan more competitive for manufacturing.

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