Gov. Jennifer Granholm last week said she would stop pushing a proposal to lower Michigan’s sales tax while extending it to cover some services due to lawmakers’ resistance.

Granholm first pitched the idea at her state of the state address in February, saying it would raise up to $500 million in new revenue for the fiscal 2011 budget. The measure would lower the sales tax to 5.5% from 6% and extend it to cover some, but not all, services. At the same time, the state would have phased out an unpopular 22% surcharge on the Michigan business tax.

“I think tax restructuring … is really important for the future of our state,” Granholm was quoted as saying in the Detroit Free Press last week.

But, she said, “I understand there is no desire in the Legislature to talk about anything with the word 'tax’ in it.”

Also last week, Granholm signed into law a $12.8 billion K-12 budget for 2011 that will enact an $11 per-pupil increase. That budget is one of the largest of Michigan’s 15 budget bills.

Lawmakers are expected to take longer to craft other budget bills, since the state’s general fund faces a deficit that could be as high as $2 billion if Congress does not enact a federal jobs bill that includes more than $500 million in federal Medicaid money.

Michigan’s school aid fund, in contrast, enjoyed a small surplus this year due to better-than-expected sales tax revenue collections.

The state’s fiscal year begins Oct. 1. Legislators had aimed for completing the budget by June 30 but the deadline has come and gone amid a heated re-election season.

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