The Ability of the Government to Reform the Tax System

Gov. Rick Snyder and others have questioned whether large, positive tax reforms would be possible under Proposal 5. The governor points to the 2011 reform of the Michigan business tax — a revision he spearheaded — as a case in point.

In this reform, Gov. Snyder prevailed upon legislators to repeal the MBT and replace it with a flat rate corporate income tax. The result of that and myriad other tax changes — including an effective tax hike on pensions — was a net tax cut[53] and the termination of a state business tax that was considered among the nation’s worst.[54]

Would such a reform have been possible if Proposal 5 had been in effect? No doubt the parts of the deal that involved increasing certain taxes would have been more difficult under a supermajority requirement. This is the nature of such a provision.

But it is worth remembering that only the components of the plan involving a tax increase would have required a two-thirds supermajority — not the entire reform package. Proposal 5 does not prohibit taxes from being cut, just as they have been in the past, by a simple majority vote of both chambers of the Legislature.

No one can really say how Gov. Snyder’s MBT reforms would have played out. The package would probably have been subject to more horse trading, but not all of this bargaining would have been prohibitively difficult or necessarily bad. For example, under the two-thirds supermajority vote requirement, lawmakers intent on tax reform might have been forced to set priorities and cut spending from the state budget[*] and thus avoid hitting pensioners with a higher tax bill. In that scenario, a tax shift would have become a straight tax cut precisely because a supermajority tax vote requirement raised the political cost of tax increases of any kind.

Obtaining a legislative supermajority is not the only way a major tax reform could occur under Proposal 5; a simple majority vote of the electorate at a November election would also suffice. Michigan’s voters have in fact proved themselves capable of enacting a major tax reform. In 1994, voters passed Proposal A, which involved the creation of a new statewide property tax, caps on local property tax growth, an increase in the state sales tax and changes in the financing of public schools.[55] These changes were significant, and they were similar in magnitude to the replacement of the MBT.

[*] In addition to the state spending-cut suggestions mentioned in the previous section, the author has identified numerous other possible spending reductions. See, for instance, Michael D. LaFaive, Project Manager, “Recommendations to Strengthen Civil Society and Balance Michigan's State Budget,” (Mackinac Center for Public Policy, 2003), (accessed Oct. 22, 2012); ———, “Recommendations to Strengthen Civil Society and Balance Michigan's State Budget,” (Mackinac Center for Public Policy, 2004), (accessed Oct. 24, 2012). Other possible spending cuts can be found in Jack McHugh, “Replacing Michigan’s New Taxes With Budget Reductions: Curing $1.358 Billion in Overspending With 55 Specific Recommendations,” (Mackinac Center for Public Policy, 2007), (accessed Oct. 24, 2012).