Cut Total Taxes Sharply in 1993, By Smaller Amounts in the Future
economic model developed by the author for the Mackinac Center indicates that
Proposal "A" would save Michigan taxpayers approximately $1.1 billion in net
state and local taxes in the current year, and between $230 and $320 million in
each of the next four years. This model relies on assumptions independent from
those used by government agencies, incorporates dynamic behavior on the part of
both the private and public sectors, and does not include tax savings measures
proposed alongside "A" but not included in it. See page 21 and Appendix III on
"A" Would Increase Homeowners' Equity by $16 Billion
permanent reduction in property taxes would significantly increase the value of
property since the lower cost of holding the asset would increase its market
value. This increase in homeowner's equity would add approximately $16 billion
to the wealth of Michigan citizens in the current year, the equivalent of $1775
for even man, woman, and child. This real spendable wealth would be convertible
to cash through mortgage refinancing, home equity loans, or sales of property.
See page 13, and Appendix II on page 34.
Tax Cuts and Wealth Increases Would Add Jobs Economic Growth
substantial net tax reduction in the current year, the smaller tax reduction in
future years and the increase in wealth of Michigan residents would stimulate
Michigan's economy. The additional disposable income would generate increased
private sector jobs in the state and the reduction in property taxes would
encourage investment in plant and equipment among Michigan industries. While
estimates of "new jobs" from government programs are notoriously exaggerated,
the benefits from a reduction in state and local tax burdens – allowing the
private sector to create the jobs where most needed – are proven. See page 30.
"Cap" on Assessments Introduces Nonuniformity, But Avoids Assessment Shock
cap on annual assessment changes would make property tax burdens much more
predictable, but at the cost of introducing nonuniformity, since owners of
similar parcels would often face different tax burdens. The current assessment
system fails at providing due process, and "A" would substitute deliberate, but
predictable and tax-limiting, nonuniformity. See page 8.
State Would "Lose" Over $130 Million a Year to Sales Tax Avoidance
economic model developed for this study recognizes that taxpayers avoid paying
taxes when possible. Using conservative estimates of tax avoidance behavior, the
model predicts that a 50% increase in the sales and use tax rates would result
in a 5%
drop in taxed transactions. Tax avoidance results in about $135 million less
sales and use tax revenue in 1994, growing to $154 million by 1997, than the
consensus state government estimate. The sharply increased sales and use tax
rates would result in more catalog sales from out-of-state vendors, purchases of
big-ticket items in advance of the effective date, and reduced incentives to
travel and purchase goods in Michigan. See page 21 and Appendix III on page 37.
Watch for Legislative Weakening of Millage Limits
constitutional amendment is clearly intended to permanently limit property taxes
by limiting school operating millage rates. "Operating" has a long history of
meaning all purposes other than millage to repay voter-approved debt. However,
the amendment allows the legislature to define "operating," and a draft bill
excluded "operating deficit" millage. Such an exclusion, if it survived
court challenge, would open the door to school property tax increases beyond the
clearly stated in the amendment.
future judicial interpretation of this amendment willhinge on for
what the "common man" thought he was voting, voters must pay close attention to
any statutes enacted prior to the election date that define its tax limitations.
See page 6.
"Double Rollback" on Millage Rates and Assessments Required in 1993
the current Constitution and law, the assessment increases mailed to taxpayers
in the spring must cause "Headlee " rollbacks in millage rates immediately after
the fourth Monday in May – before the election date for Proposal "A." If "A" is
adopted. then the new constitution would require further rollbacks in assessment
increases that exceeded 3%, resulting in a "double rollback" for 1993. The "Headlee"
millage rollback in 1993 accounts for approximately $110 million of the gross
property tax savings under "A." Should immediate-effect legislation eliminate
the millage rollback in 1993 under "A," it would add this amount to the property
tax for future years as well. See page 11.
Taxpayers Would Gain Greater Control Over Local School Expenditures
Taxpayers in most school districts would gain more control over their local
school finances under "A" because of its little-noticed provision restricting
millage elections to no more than two per year, and its allowance of only 9
voted mills for operating purposes. Rather than facing multiple elections each
year and "all or nothing" ballot questions, taxpayers under "A" would have two
or less elections per year, and each ballot question would ask for marginal
increases in tax revenue. See page 18.
"A" Would Strengthen "Headlee" State Tax Limit; Weaken
Local Share Requirement
new sales and use tax revenue would be applied against the existing Article IX
section 26 ("Headlee") state tax limit. Although the state government currently
has substantial cushion above the limit, the additional state tax revenue under
"A" would reduce tile opportunity for a future legislature to raise taxes.
However, the additional state spending to local schools would also weaken the
Article IX section 30 ("Headlee") requirement that the statesend 41.6% of their
spending to local units of government. See page 25.
Many Implementation Questions Unresolved
constitutional amendment leaves many definitions, implementing procedures, and
interpretation question to the legislature. Probably the most important are the
property tax limitation issues. Besides the definition of "operating" purposes
millage. cited above, important unresolved questions include
school districts can levy "extra-voted" millage in 1993 and thereafter; see page
expenditures are included in the per-pupil guarantee, and whether such funding
counts for categorical programs protected by the "Headlee" amendment: see page
"A" Not School Quality Reform, Except by Encouraging Some Competition
would substantially reduce the current disparity in school district
expenditures, primarily by allowing lower-than-average spending school districts
to spend more. The historical record indicates strongly that student performance
has little or no relationship to expenditures, so increased public school
expenditures under "A" would likely have little long-term benefit in terms of
student performance. However, "A" would encourage some competition among public
school districts by making it easier to adopt a limited "schools of choice"
system. See page 20.