The Ability of the Government to Raise Needed Revenue

A question naturally raised by a consideration of Proposal 5 is whether a supermajority tax vote requirements could make it difficult for the government to raise revenues for necessary programs. The concern would seem particularly pressing in poor economic times, when tax revenues often decline.

Having to meet a higher vote threshold would make it more difficult to raise taxes; this is the inevitable effect of a supermajority requirement. That said, raising taxes under a supermajority tax vote requirement would not be impossible.

In the past decade, Michigan state government has faced a number of budget deficits. These have been addressed in part with a cigarette tax hike,[42] a de facto property tax increase (due to a shift in the date taxes are paid),[43] new fees and fee hikes[44] and a $1.4 billion personal and business tax increase.[45] At the time of the $1.4 billion increase, Gov. Jennifer Granholm argued that further spending cuts would be damaging to the state and that a general tax increase was needed.[46]

If Proposal 5 had been in place in 2007, would the $1.4 billion in tax hikes have passed? At first blush, the answer would appear to be “no.” At the time, despite assurances that the personal tax increase would only be temporary and that the new revenues would put the state on firmer fiscal ground, many state legislators balked at the idea.[*] Not until the final hours of the final session of the fiscal year did the package pass, and it did so largely along party lines, with Democrats generally favoring it and Republicans generally opposing it.[47]

A supermajority tax vote requirement would have made this increase more difficult, but probably not impossible. Consider that most of the Republicans who voted against this tax hike nevertheless voted “yes” on much of the spending that was associated with the new tax revenue.[48] If the choice was truly between cutting spending and raising taxes, it is very possible — perhaps likely — that the Granholm administration would have successfully marshaled the votes to pass the tax hike.

At the same time, it is unlikely that failing to pass this tax increase would have led to a financial catastrophe in state government. As has been pointed out by James Hohman of the Mackinac Center for Public Policy, state and local government could save more than $5 billion annually by benchmarking government employee fringe benefits packages to private-sector averages.[49] The Mackinac Center has published other spending-reduction proposals that would have bridged the projected revenue shortfall in 2007.[50]

Ultimately, an inability to raise taxes in 2007 could have led to reasonable state spending cuts that kept tax burdens lower on Michigan citizens during an economic downturn. This, in turn, might have provided substantial economic benefits. Instead, between 2001 and 2010, Michigan experienced a “lost decade” of economic growth.[51] It’s not clear that sustaining government revenues during the downturn was the wisest course.

A related concern is that the supermajority tax vote requirement, if adopted, would grant a relative handful of lawmakers extraordinary powers. Under this view, senators or representatives who might provide the additional votes needed to meet the two-thirds requirement could demand political favors that drive up the cost and inefficiency of government.

This situation does not appear to be fundamentally different, however, from what occurs when a handful of legislators represent the decisive votes for a simple majority vote requirement on a controversial issue. The 2007 vote to raise personal income taxes was narrowly decided in the Michigan House and Michigan Senate.[52] It would be naive to assume that the legislators who provided the last few votes for this majority approval did not have considerable leverage with lawmakers and lobbyists seeking to sway them.

[*] Notably, the scheduled 2012 rollback in the personal income tax was postponed by Gov. Rick Snyder and the Michigan Legislature. See “2011 House Bill 4361: Replace MBT, raise income tax, trim credits: Public Act 38 of 2011,” (Mackinac Center for Public Policy, 2011), Michigan Votes, (accessed Oct. 24, 2012). The $1.4 billion tax hike also failed to stabilize the state’s finances, and in her last year in office, Gov. Granholm proposed another $554 million tax hike. See Jennifer M. Granholm and Robert L. Emerson, “Executive Budget: Fiscal Year 2011,” (Michigan Department of Management and Budget, 2010), A-10, (accessed Oct. 24, 2012).