Nov 7, 2007

Senate kills service tax as debate turns ugly

LANSING – The Senate voted almost along party lines to repel the service tax on certain services Wednesday that could create a $613 million hole in the budget that was just approved last month.

The Republican controlled Senate voted 23-15 for Senate Bill that 838 that would repel the 6 percent sales tax on certain services that was just approved on Oct. 1 with House Bill 5198 that helped make up the $1.8 billon budget deficit and balance the budget.

“Yesterday, we heard from business people in the state, real human beings, who will be negatively effected by this tax,” said Sen. Nancy Cassis, R-Novi, the chair of the Finance Committee that tock testimony on the bill on Tuesday. “I can say there is a real bi-partisan consensus to repel this tax.”

The tax was set to go into effect on Dec. 1, but SB 845 approved last week delays its implementation until Dec. 20. Sen. Mike Prusi, D-Ishpeming, introduced an amendment to SB 838 that tie-bars it to a bill expected to come from the House that would make up the lost revenue and avert another government shutdown. Various solutions have been floated around that includes increasing the state income tax even higher or making up the lost revenue in the Michigan Business Tax (MBT) just approved last summer, and the Democratic-controlled House Tax Policy Committee is expected to come up with a solution very soon.

“I think we are all aware that the House Tax Policy Committee is working on a bill to make up the revenue,” he said. “My amendment simply tie-bars this bill to the one the House will come up with.”

Senate Minority Leader Mark Schauer, D-Battle Creek, said it may be a bad tax, but there simply has to be something approved first to replace it, pointing out it took more than six months to replace the Single Business Tax (SBT) after it was killed with no replacement that left many companies and businesses looking to relocate in Michigan in the dark.

“It seems to me by the overwhelming votes for the spending bills last week that there is a consensus to spending,” he said. “It would blow a $600 million hole in the budget.”

The amendment was defeated 21-16, and the mood then turned ugly. Democrats accused the Republicans of playing “gotcha politics” and the Republicans accused Democrats of lying.

“This is all about gotcha votes,” Prusi said. “This is about a vote so the media sitting here can go out and say the heroic Republicans are cutting taxes and Democrats are obstructionists.”

Sen. Gretchen Whitmer, D-East Lansing, said the Senate was voting to kill a tax they approved last month that would balance a budget they just approved last week. She also said most of the business people who testified at the Finance Committee said they did not like the services tax, they were barred from talking about a replacement they said was necessary.

“This is fiscally irresponsible,” she said.

Cassis took exception to her remarks, and Cassis had to be warned twice to direct her remarks to the chair and once to refrain from violating Senate rules about talking “disparagingly” about a fellow senator. She also said Whitmer was making things up and reinventing her positions. She also challenged the Democrats to “bring it on” to find a replacement.

“The Senator from Lansing talks out both sides of her mouth,” she said.

Unless the House approves SB 845 that delays implementation of the tax, it will go into effect on Dec 1. Compounding the problem that could lead to another possible budget standoff and government shutdown is the fact that the Legislature goes on a two-week break at the end of session on Thursday.

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