Executive Summary of Cut and Cap

Proposal C, also known as "Cut and Cap," would reduce property taxes by constitutionally exempting a flat percentage of the value of a11 parcels from school operating property taxes. The exemption grows to 30% by 1997, and with school operating millage at about 60% of total millage, Cut and Cap would mean a permanent reduction in total property tax rates of about 18%. After adjustingfor higher tax payments . and lower tax credits, Cut and Cap would save taxpayers over $500 million in 1993, growing to $2 billion in 1997. Local school districts would be reimbursed from the state treasury for the direct reduction in property tax revenue from the exemption.

This permanent reduction in property tax rates would also result in a large increase in the value of property across the state, increasing the wealth of Michigan home and business owners by roughly $19 billion by 1997 – well over $2;000 for every Michigan resident. This combination of $2 billion in additional disposable income, and $19 billion in additional wealth, would provide a tremendous stimulus to the Michigan economy. This stimulus would result in higher per-capita income, an increase in employment, and the attraction of more businesses to the state.

Cut and Cap also limits assessment increases on individual parcels. The Headlee amendment currently limits tax increases caused by assessment growth to the rate-of-inflation, but applies the limit to all existing property, taken as a group. Cut and Cap would place a limit of 3% or the rate of inflation; whichever is less, on individual parcels. This would create more predictability in the assessments of property owners, addressing a frustrating weakness in the current property tax system. However, it would also cause identical parcels, to be taxed at different effective rates, as long-held property became increasingly under-assessed compared with recently-purchased property. California's "Proposition 13" constitutional tax limitation has a similar feature; which was upheld by both the California and the U.S. Supreme Court as constitutional.