Michigan Developments
Eric Rule,
Director of Governmental Affairs

House GOP majority takes hit from voters

House Democrats netted a gain of five seats in the November 2 election, reducing the GOP majority from 63 to 58. The balance of power in the House now stands at 58-52. There were no seats at stake in the Senate, where Republicans also hold control.

The five-seat pickup led House Democrats to re-elect Dianne Byrum of Onondaga as the chamber’s minority leader. She faced a possible coup d’etat from some within her party if the Democrats did not pick up at least three seats.

Many had speculated that Rep. Barb Farrah (D-Southgate; see Legislative Profile on page 9) would challenge Byrum if election results weren’t stellar for the caucus.

Byrum can play an even stronger role in the House process now that intra-party politics have died down and her party’s numbers in the chamber have increased.

Because 38 House members were term-limited and two incumbents were knocked off, there will be 40 freshman legislators on their way to Lansing come January 1.

DeRoche will be next Speaker of the House

Rep. Craig DeRoche (R-Novi) was unanimously elected Speaker of the House of Representatives when the new GOP caucus voted on November 10. DeRoche’s closest rival, Rep. Bill Huizenga (R-Zeeland), officially bowed out of the competition before the election in the name of greater party unity.

DeRoche, who will take over Speaker Rick Johnson’s position in January, had formed a leadership coalition with Rep. Scott Hummel (R-DeWitt), who was elected Speaker pro-tem, and Rep. Chris Ward (R-Brighton), who was elected House Majority Floor leader.

Lame-duck session could be exciting

The old joke that we are never safe when the legislature is in session is even more true when dealing with a lame-duck legislature, the session between the November election and the end of the year. Since they will not be returning in January, 38 term-limited members of Michigan’s House and two incumbents who were not re-elected will have less accountability to voters than they did before November.

Several issues of significance may be brought up during the lame-duck session:

• Tax Restructuring: A big push to replace or revise the Single Business Tax has been making its way around Lansing for the last few years. This issue may be coming to a head, with Governor Granholm indicating she may be open to it. In addition, Treasurer Jay B. Rising has met with business groups—including MRA—to gauge their level of interest on action.

With state budget problems expected to continue into the near future, there has been an increased call to tax services as well as goods. This is especially timely, as our economy has been transitioning more and more to a service economy. Republican leaders have also said they would be open to exploring this area.

• Term Limits: Rumors have been swirling around the Capitol of late that an extension of term limits may be voted on in lame duck. Two legislators have bills extending the current six-year maximum to 12 years maximum for either chamber.

Legislators would love a term limit extension, but the public appears solidly against the idea. While this issue may come up in lame duck, the will may not be there to take a vote on it. And any successful vote would merely place the issue on the ballot to be decided by the public. Since this is viewed as a legislative approach to term limits and not citizen driven, it would face an extremely difficult test to be approved by the voters.

• Water Legacy Act: Gov. Granholm has again indicated that she would like to see the Water Legacy Act passed before session adjournment. However, Republicans recently tried to preempt the issue by passing a resolution in the House that makes it illegal to divert water from the Great Lakes.

The resolution accomplished two things: it stated that diversion is detrimental to the state and should not occur, while giving the state’s aquifer-mapping project time to reach some conclusions. And it provided House Republicans some cover on this issue during the election.

Granholm will probably continue to stress the issue in the media, but MRA will continue to emphasize that sound science, not emotion, should lead this issue.

Update from Washington
James Goldberg,
MRA Washington Counsel

President signs I-9 recordkeeping bill

President Bush has signed legislation supported by MRA that would give MRA members and all employers greater flexibility in the way in which they complete and store Form I-9.

All employers must complete and keep the form for all employees that they hire. When the law was passed more than 10 years ago, it included a requirement that employers maintain the Form I-9 in paper or microfilm form for at least three years following the employee’s last day of work.

For large companies, or ones that have had a lot of employee turnover, that makes for a lot of paper.

The new law permits employers to complete the form electronically (for example, by using a fill-in pdf file) and store it electronically on a computer disk or hard drive.

Thus, MRA members who maintain personnel records in an electronic format can now add the Form I-9 information to the individual worker’s file. Score one for common sense.

FICA taxes going up again in 2005

Highly paid employees will see a moderate increase in the wage base on which social security taxes are due for 2005.

The 2005 wage base of $90,000 is $2,100 higher than the 2004 amount, and the maximum additional social security tax that must be collected on someone earning above the wage base is $131.20.

The tax increase will show up in the FICA (Federal Insurance Contribution Act) deduction from an employee’s paycheck—and the amount that the employer must also pay—for these high earners. Although the tax rate for the Old Age, Survivors and Disability Insurance (OASDI) portion of FICA has held steady at 6.2 percent since 1990, the amount of wages subject to the tax can, and usually does, increase each year based on a national wage index.

Most observers agree that the modest tax increase is not sufficient to insure the solvency of the social security retirement system without some major overhaul of retirement age, benefits, taxes or a combination of them.

Bush signs major corporate tax bill

President Bush has signed the American Jobs Creation Act, a 650-page bill that started as a modest measure to revise a corporate tax break that this country’s foreign trading partners had complained about.

The simple “fix” turned into an election-year, pork-laden behemoth that provided some tax relief for virtually the entire corporate sector, plus some special provisions (such as the lifting of tariffs on ceiling fans imported from China by The Home Depot).

Small business benefits by the extension, through 2008, of the ability to expense—rather than depreciate—asset purchases (e.g., furniture, fixtures, computers, etc.) up to $100,000 a year.

Federal tax reform could be ahead

In the eyes of some Capitol Hill tax observers, the new corporate tax bill may also hasten the need for, as well as the likelihood of, major tax reform. Creation of many new tax “loopholes” makes the current system more, not less, complex.

And then there’s the matter of the alternative minimum tax. First enacted more than 30 years ago to make sure that high-income individuals paid at least some tax, inflation over the years has made more and more middle-class taxpayers potentially subject to the AMT.

Unless something is done to fix it—previous attempts have just been short-term modifications—the AMT will generate more in revenue in 2008 than the current income tax. It will then resemble more closely a so-called “flat tax,” which has some support in Congress. The flat tax is certain to get a close look in the next year or two.

There’s also a major push among some members of Congress to scrap the entire federal tax system and replace it with a national sales tax, something that MRA’s Washington Office and its retail industry allies strongly oppose.

A national sales tax, according to most estimates, would have to be set initially at 23-25 percent on all purchases—including everything that is now exempt—in order to generate the same amount of federal revenue as does the current tax system.

While fundamental tax reform may be unlikely in near term, it will certainly be considered. MRA’s Washington Office will be there watching and participating as needed.

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