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Well, it’s official. Michigan has replaced the much reviled Single Business Tax with the Michigan Business Tax. The Michigan Business Tax is a two part tax that contains a tax on “modified gross receipts” and a traditional corporate net income tax. The Single Business Tax was Michigan’s attempt at a value added tax that penalized companies for expanding into Michigan.

Determined to not make that mistake again, the compromise Michigan Business Tax will give plenty of good soundbites to state politicians looking to take credit for the legislation. That’s about the best thing that I can say about the bill. The tax levies $3.4 billion in taxes to collect $1.8 billion annually. The other $1.6 billion goes to various tax credits and other tax breaks that legislators slipped into the legislation.

It contains tax credits for paying workers in Michigan and investing in Michigan assets. It contains tax credits for doing research and development in Michigan. It contains tax credits for the owners of Michigan International Speedway and the Detroit Pistons. It contains tax credits for new motor vehicle and personal watercraft dealerships. It contains two tax credits specifically for grocery store chains that have their headquarters in Michigan (anyone know who these companies are?). It also continues a ton of credits that were legislated under the SBT.

The basic effect of these tax credits is that the tax rate is doubled for everybody in order to grant tax credits to specific industries or favored businesses. Should Michigan businesses subsidize the Pistons new stadium or the remodeling of Michigan International Speedway by paying twice as much in tax? What about the grocery store chains doing business in Michigan subsidizing their competitors that are headquartered in Michigan?

The surprising fact is who was demanding all of these business subsidies. Most people would immediately assume the Republicans would be the ones pushing for all of this corporate welfare. You’d be wrong. The Republican Senate version of the legislation was much better tax policy. It eliminated most (if not all) credits and simply levied the taxes at a much lower rate. During the negotiations with the Democratic House all of these credits were added.

The rates would be much more competitive if all of the credits were taken out, but then politicians couldn’t claim to be saving Michigan jobs and making all of those out of state companies that suck the lifeblood out of Michigan pay their fair share. Tax policy always takes a back seat to politics when you have politicians making the rules.