Another possible concern is that Proposal 5’s supermajority legislative requirement on state tax increases would, by lowering access to new state tax revenues, increase the pressure for local tax hikes. Perhaps state revenue constraints could lead state legislators to reduce state transfers to local governments, increasing the incentive for local governments to seek tax hikes.
At first glance, this outcome might seem like a classic unintended consequence of trying to regulate state spending. But this possibility should be viewed in the context of existing Michigan law. The state constitution already places a floor on how much the Legislature can reduce the state revenues it provides to local government. This floor is a provision of the Headlee Amendment.
In addition, it should be noted that the Headlee Amendment also protects local units from being forced to finance unfunded state legislative mandates. Under Article 9, Section 29, of the state constitution, state government must provide local governments with the money to cover any costs it imposes on them through legislative directives.
The Headlee Amendment to the Michigan Constitution also requires a vote of the people on any local tax increases. This means that under Proposal 5, it would be no more difficult to get a tax increase approved by the people at the state level than it already is at the local level, given that Proposal 5 allows voters to approve state tax increases through a simple majority vote. Arguably, then, Proposal 5 would redress an existing constitutional imbalance that favors higher state taxes over higher local ones.
If state voters pass a supermajority tax requirement, it seems unlikely that they will, in large numbers, vote for new local taxes. If they do vote for such taxes, it is unclear that they will have a higher tax burden than they would have had if state taxes had been raised instead.