By reducing property tax burdens significantly, "A" would give a powerful boost to the state's economy. The permanent reductions in tax burden would result in greater disposable income available to Michigan consumers, increases in wealth due to tax capitalization and better incentives to entrepreneurs to locate in Michigan. As detailed in Appendix I to this study, page 30, such a reduction in tax burden would increase employment and improve per-capita income.
A lower tax rate directly increases the value of an economic asset, through tile phenomenon known as "tax capitalization." Whenever the cost of holding an asset declines, its value increases, since the owner now will be required to pay less each year. This improvement of the owner's cash flow is capitalized into the price of the asset. Tax capitalization in property values is well established in commercial practice, the law of taxation and assessment, and the financing of homes. The revenue analysis in this study explicitly includes estimates of tax capitalization. To not include tax capitalization would be to ignore fiscal reality, as well as Michigan law. Further explanation of the commercial. legal and financial aspects of tax capitalization is in Appendix II, and the revenue analysis is presented on page 21.
This analysis indicates that permanent reduction in property taxes under "A" would result in a large increase in the wealth of Michigan property owners on the order of $l6 billion. This would be about $1775 for every Michigan resident in real, spendable wealth – a further stimulus to the Michigan economy.