In his two-year budget, Governor Kasich proposes to expand Ohio’s sales tax to apply to most services to pay for an income tax cut. Expansions of sales taxes to services have been proposed before, but typically fail. We’ve already discussed previous efforts in Florida and Ohio. Today we look at a 2007 effort in Michigan.
On October 1, 2007, the Michigan legislature passed a bill expanding the state’s sales tax to services. Like in Ohio, proponents noted that the service sector was growing as a share of the economy and represented three-fifths of consumer spending. Expanding the sales tax would generate an additional $1 billion in revenue that was needed to fund infrastructure projects, education, police and fire departments, welfare and the prison system. And, also similar to the Kasich effort in Ohio, proponents of the Michigan tax expansion argued that the expansion was actually more progressive than the existing sales tax on tangible goods because wealthier taxpayers use more services — and more expensive services — than the poor.
The bill took effect on December 1, 2007, but was repealed just 17 hours later. Here’s how it played out:
Testimony on the Kasich tax plan continues this week in the House.