State representative and gubernatorial candidate Rep. Alma Wheeler Smith is calling for a $6.5 billion tax reform that includes a sales tax on services and enacting a graduated income tax.

Smith, D-Salem Township, on Tuesday proposed measures to enable the state to eliminate the nearly 22 percent surcharge on the Michigan Business Tax and reinstate funding for key areas cut in the current state budget, like Medicaid, revenue sharing and K-12 education.

The plan would also fund her previously proposed new income tax credit to cover preschool costs and tuition at state community colleges, universities and vocational schools.

The proposal includes:

• Eliminating various business tax credits and exemptions, generating $3 billion.

• A ballot initiative to enact a graduated income tax, bringing in $2 billion. Under a graduated tax, taxpayers with higher income levels pay a higher rate than those with lower incomes. Smith’s office said more than 80 percent of Michigan taxpayers would see a net tax cut.

• Extending the 6 percent sales and use tax to services, excluding some business-to-business services and certain other areas, and lowering the tax to 5.5 percent, generating $1.5 billion.

Smith is drafting legislation for the measures and hopes to introduce it in January.