Proposal 5’s supermajority requirement to raise state taxes would grant taxpayers extra protection against state tax hikes. It would still be possible to raise taxes — either with a two-thirds vote in the House and Senate, or by a majority vote of the people; it would just be harder. Given the academic literature on the subject, the requirement is likely to be effective and to help the state’s economy.
Michigan citizens arguably need more protection from tax and spending increases than currently afforded by the Headlee Amendment. Indeed, as of the close of fiscal 2011, Michigan legislators could still have taken nearly $5.6 billion more from Michigan citizens than they did before bumping up against Headlee’s state revenue limitation.
Arguably, Proposal 5 would have benefited from the incorporation of a stricter state spending limitation, such as the one that exists in the state of Colorado. In 2006, a “Stop Overspending” initiative was proposed that would have done just that by restricting state spending to annual increases in population plus inflation. This was a promising idea; it ultimately failed to make the ballot.
The taxpayer protections offered by Proposal 5 arrive against an interesting backdrop. At the national level, taxpayers are looking at the so-called “fiscal cliff” also known as “Taxmageddon.” This represents a tax hike that is scheduled for Jan. 1, 2013 and that the Washington, D.C.-based Heritage Foundation estimates at $494 billion annually. The increase is the result of the expiration of temporary federal tax cuts, as well as new taxes related to the federal Patient Protection and Affordable Care Act. The expiring payroll tax alone will reportedly affect 163 million Americans and cost the average worker $1,000 annually.
At the state level, tax reform has made news, but so have tax proposals. Earlier this year, Gov. Snyder proposed a gas tax increase. Had his proposal been adopted, Michigan would have had the second-highest gas tax in the nation, behind only New York. A gas tax increase could be attempted again next year.
Proposal 5 would provide a larger check on that impulse. Whether this is appropriate could depend on one’s views.
Still, it is worth recalling that a shortage of government revenue during an economic downturn is just the tip of an iceberg. The bulk of the iceberg, less visible, is the shortage of revenue in households, businesses and the private economy. It may be appropriate to ensure that state legislators think hard before requiring families and businesses to give up more money to help legislators balance the state budget.