Because "A" would affect both the property tax rate and its base, the sales and use tax rates, credits against the Michigan income tax. and deductions under the Federal income tax, and affect the disposable income, homeowner's equity and business incentives of Michigan residents, a proper individual analysis is not easy. Many of the early analyses of Proposal "A" contained examples of individual taxpayers designed to determine whether such taxpayers would pay more, or less in total taxes. None of these took into account the full impact of the proposal, and some were deeply flawed. Among the effects left out of some of these analyses were:
Ignoring the effect of lower taxes on property values. or ignoring the change in assessments over time altogether;
Ignoring likely millage rate changes because of "Headlee" rollbacks, or ignoring SEV changes all together;
Ignoring the first-year impact of an entire year of property tax savings along with 5 1/2 months of sales tax increases;
Incorrectly assuming that most individuals both receive an itemized deduction for property taxes and a "circuit breaker" credit; as discussed below, only about a third of Michigan taxpayers itemize, and many two-earner or higher income households are ineligible for a full circuit breaker credit;
Ignoring the effect of reduced business taxes on workers, investors. and consumers; while the discussion below indicates a detailed breakdown may be impossible, it also concludes that at least $400 million in these benefits go to Michigan residents;
Ignoring the impact on non-property owners such as renters and students, or assuming the impact is entirely negative;
Incorrectly assuming that half or more of annual income typically is spent on sales-taxable items, or that the sales tax isn't "progressive" or "fair;"
The sections below discuss the actual impact on different classes of taxpayers
Renters pay property taxes through their rent. The Michigan income tax code allows renters the same "circuit breaker" credit by assuming that 17% of rental payments go to property taxes. By reducing the tax burden on rental property, "A" would lead directly to a reduction in rent. This reduction would be delayed for many renters until the end of their lease period, and would be mixed in with other costs, many of which will be rising. A rough estimate of the average effect, over time, on rent due to the property tax cut would be a reduction of around 4%. Because other costs will probably increase, the reduction in the property tax costs would show up in many areas as a slowdown in the increase in rental costs. The reduction in rent would not come about because of government edict, but because of competitive market pressures – a far more effective control on profit margins and prices.
People will face the sales and use tax increase when they consume goods and services. The sales and use taxes are consumption taxes, which do not penalize savings and investment like income and property taxes.