Michigan Governor Gets Mixed Reviews on Plan to Cut Corporate Taxes, but Tax Pensions

Michigan Gov. Rick Snyder talks about county development and local government reform on March 21 at Grand Rapids City Hall. (AP)

Michigan's new Republican governor is earning enemies and friends with his sweeping budget proposal, a plan that would slash corporate tax bills by applying a limited flat tax while making up the difference with new taxes on seniors and other groups.

AARP Michigan has been one of the most vocal critics of Gov. Rick Snyder's plan, calling it "the biggest tax increase in the history of our state." The group held a rally last week under the banner, "It's Not Fair."

Unions and Democratic officials have also come out against it, while business types claim the plan will spur growth.

Snyder's budget gambit, which came after a bill that would give him the power to intervene in local government affairs during a fiscal emergency and cancel union obligations, is setting up another Midwestern battle in the same vein as the showdown in Wisconsin over union rights.

It's unclear whether he'll have the momentum to push the tax plan through, with Democrats starting to organize against it. A Public Policy Polling survey out earlier this week also showed Snyder losing popularity. The poll showed just 33 percent approve of Snyder's performance, with 50 percent giving him a negative rating. The rest weren't sure. The poll of 502 state voters, which had a margin of error of 4.4 percent, showed the fiscal emergency plan getting nearly identical marks.

The budget plan follows up on a campaign promise Snyder made last year to simplify the tax code and make Michigan more business-friendly. Instead of a convoluted system known as the Michigan Business Tax, the plan calls for a straight 6 percent corporate income tax - a move expected to slash taxes by $1.8 billion. Only major corporations that have shareholders would be subject to the tax, meaning an estimated 95,000 businesses would be exempt from filing a state business return.

In exchange, various corporate tax credits would be eliminated, including the state's popular film industry credit, replaced with a $25 million grant program.

But most of the money would be made up with changes to the individual income tax structure. In the most significant shift, pensions would be taxed by the state -- though not Social Security. Most income tax credits and deductions would also be eliminated, like the Earned Income Tax Credit for low-income residents, or at least reduced, like the Homestead Property Tax Credit.

Some groups have lauded Snyder's proposal.

"This puts us very much in line with the rest of the nation," Michigan Manufacturers Association Vice President Mike Johnston told FoxNews.com. "The overall plan is really good for Michigan's business climate, because what it says is Michigan's going to be open for business. ... We're reducing the burden on job providers."

Under the current system, businesses face a 4.95 percent tax on corporate profit, as well as a .8 percent tax on transactions and a 21.99 percent surcharge on their total tax bill. Snyder claimed during the campaign that, as a result, the cost of doing business in hard-hit Michigan is 2 to 4 percent higher than in most states.

Mike Finney, head of the Michigan Economic Development Corporation, said in a written statement the plan would take the state on a "bold path toward broad economic development success."

The Tax Foundation released an analysis earlier this month that said it should boost the state's competitiveness. The organization defended Snyder's decision to tax pensions, noting that Michigan is one of just three states that exempt private and public pension income.

"Snyder's approach broadens the tax base ... while eliminating unjustifiable distortions," the Tax Foundation study said.

But the shift in the tax burden from businesses to individuals at all income levels has some claiming the governor is just hurting low- and middle-income earners.

"While the governor has talked repeatedly about shared sacrifice, his budget proposal doesn't back that up," House Democratic Leader Richard Hammel said in a statement after the budget was unveiled last month. "Instead it takes Michigan backward by giving massive tax breaks to corporations and shifting the burden to our seniors, our children and working families."

The Associated Press contributed to this report.