Proposal 5 Likely to Help Limit State Taxes and Improve State’s Economy

Proposal nevertheless appears to allow lawmakers to raise revenues if necessary, undertake major tax reforms and avoid ‘California-style’ budget problems

For Immediate Release
Friday, Oct. 29, 2012

Contacts:
Michael D. LaFaive, Director of Fiscal Policy
or
Ted O'Neil, Media Relations Manager
989-631-0900

MIDLAND — Proposal 5’s supermajority tax vote requirement could lead to restraints on state government taxes, thereby promoting economic growth, according to a new Policy Brief released today by the Mackinac Center for Public Policy. The proposal, which will appear on the Nov. 6 statewide ballot, would require a two-thirds supermajority vote in both the Michigan House and Senate before legislators could impose a new tax or tax hike that currently requires only a majority vote. Alternatively, new or higher state taxes could be approved by a simple majority of state voters at a November election.

“The weight of the research literature on tax limitations like Proposal 5 and Michigan’s Headlee Amendment suggests that they lead to lower state and local taxes and higher state economic growth,” said Michael D. LaFaive, director of the Center’s Morey Fiscal Policy Initiative and author of the Brief. “Fortunately, the proposal is written in a way that protects the many beneficial provisions of the Headlee Amendment, as well as Michigan’s current three-quarters legislative vote requirement for raising the state education property tax.”

Sixteen states have some form of a supermajority tax vote requirement, and 30 have tax or expenditure limitations similar to those in the Headlee Amendment.

“Some have raised concerns that the state might not be able to raise enough revenue in order to provide necessary services,” LaFaive said, “while others have suggested that major tax reforms that include smaller tax hikes would become prohibitively difficult. But even if the Legislature could not muster a two-thirds vote, lawmakers could submit the idea to the voters for approval. Michigan voters, after all, approved Proposal A of 1994, an extensive and complicated tax reform that included tax hikes in the middle of a net tax cut.

“But let’s not forget,” LaFaive added, “that legislators could — and should — look first to cut spending before raising taxes. Mackinac Center analysts have already shown that state and local governments could reduce spending by more than $5 billion a year simply by benchmarking public-sector benefits to those offered in the private sector. To suggest that the state budget has no room for spending cuts is to ignore reality.”

Some have also expressed concern that Michigan will face budget problems similar to those in California, which also has a tax limitation amendment and a supermajority tax vote requirement. “But it appears the problem in California has more to do with the state’s voters in 1990 blowing a hole in the state’s constitutional spending cap,” LaFaive notes. “The problem appears to have more to do with ignoring constitutional limits on the growth of government, not with embracing them.”

The Policy Brief is posted online here. For more information on this and other ballot proposals, see www.MIballot2012.org.

 

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