Despite a victory in the early rounds of a debate over Michigan's corporate taxes, bankers are keeping a wary eye on the capital as the governor and the Legislature negotiate a compromise.
A plan from the Democratic governor would jack up banks' tax burden. The House and Senate, which both have Republican majorities, have been working on a reply.
Banks support an alternative the House passed last month that would leave their tax obligation essentially unchanged. A Senate bill, which cleared the Finance Committee this summer but went nowhere on the floor, would have phased out the tax over a number of years.
But anything can still happen, said Mathew J. Hanley, the director of government relations for the Michigan Bankers Association. The Republican majority is too small to override a veto, and the legislative session is two years long.
"We've seen three plans since the first of the year," Mr. Hanley said. "It is likely there will be further changes before something gets sent over to the governor's desk."
The plan Gov. Jennifer M. Granholm announced in January was meant to spur job creation (the state's 6.7% unemployment rate is the nation's second highest) by reducing taxes on manufacturers. To make up for the lost revenue, the governor proposed to increase the burden on other industries - including banking.
"Some banks would have seen an increase in SBT liability of 200% to 300%," said Todd Willoughby, the trade group's vice president of communications and information systems.
Michigan's "single business tax," adopted in 1976, is based on a number of elements, including the compensation a company pays, its profits, and depreciation of its assets. These are factored together into a tax base now subject to a basic rate of 1.9%.
Gov. Granholm proposed to reduce that to 1.2% for all businesses and give a 35% property-tax credit for manufacturing and research-and-development property. But she also proposed to triple the profit component.
A bank that makes a $1 million profit now pays $19,000 in state tax on it. The governor's proposal would triple that profit, to $3 million, and tax it at the lower 1.2% rate. The $19,000 tax on the profit component would therefore jump 89%, to $36,000.
Mr. Willoughby said the triple weighting was what troubled bankers most.
The House bill would lower the single business tax by a hundredth of a percentage point over two years, eliminate some exemptions, and create a credit based on taxes paid on industrial property. Mr. Hanley said banks would end up paying the same tax they do now.
Bankers opposed the governor's proposal at legislative hearings around the state. Jon W. Swets, the chief financial officer of the $1.8 billion-asset Macatawa Bank Corp. in Holland, Mich., testified at one.
The proposal would hurt economic growth, he testified, because banks would have less money to lend.
"My primary point" in the testimony, he said this month, "was banks and organizations in the financial services industry that lend money to businesses will be at the heart of helping manufacturing and other struggling sectors recover because they were the ones lending money to those industries to grow."
Terry Stanton, the public information officer for the Michigan Department of Treasury, said the governor's proposal was designed to reduce taxes on most businesses without creating any holes in the budget, which the House plan does not accomplish.
"They're offering reductions without a way to pay for them. The administration is concerned about blowing holes in budgets that are still being hammered out and blowing holes in budgets in future years," Mr. Stanton said.
