5 things to know about Proposal 5: Tax hike supermajority

Oct 17, 2012

State legislators play the game. Michigan voters will set the rules.

The playing field for Michigan lawmakers could change significantly after Nov. 6, if voters approve any one of five constitutional amendments on the ballot.

The "bed sheet ballot" is something California voters are used to, but Michigan voters haven't seen this many proposed constitutional amendments since 1978, when voters faced 9 proposed amendments.

We're posting on all the proposals seeking to amend the Constitution.

So far, we've posted on Proposals 2, 3, 4, & 6.

Here's what we know about Proposal 5.

Proposal 5, known as the 'tax hike supermajority' proposal, would require that state tax increases be approved by either a 2/3 majority in the Michigan Legislature or by a statewide vote.

It applies to new taxes, attempts to expand the tax base, or attempts to increase the rate of tax.

Here are "five things to know" about Proposal 5:

1) Increasing state taxes will be difficult, a minority will rule

By definition, any state tax increases will require a two-thirds majority in both chambers of the Michigan Legislature.

Alternatively, state taxes could be increased by popular vote in a November election.

The purpose is to make any state tax increases even more politically challenging.

In the Michigan Senate, 13 senators could block a tax increase.

In the Michigan House, 37 members could block an increase.

On this issue, the Michigan Constitution will move from majority rule, to minority rule.

In their analysis on Proposal 5, the Citizens Research Council of Michigan (a non-profit, non-partisan, independent policy organization) found the policy has mixed results:

One study shows that a supermajority vote requirement results in lower taxes (controlling for other factors) compared to tax levels without the requirement present. Other academic research, however, suggests that the vote requirement may affect state tax revenue, but does not affect total state revenue. In other words, states often increase other taxes, fees, and charges to make up for reduced tax collections arising from supermajority vote requirements.

Another point to consider, lawmakers often make adjustments to taxes to influence public policy - lowering some taxes while raising others.

A supermajority requirement would hamper these kinds of efforts.

Bridge Magazine's Peter Luke argues the overhaul of the Michigan Business Tax (MBT) would not have been possible had a supermajority vote been required to raise taxes.

Business groups that backed the idea of financing the elimination of the Michigan Business Tax through assorted tax increases oppose the constitutional amendment effort financed by the Moroun family that owns the Ambassador Bridge. And for good reason: Had Proposal 5 been in effect last year, the MBT would still be in place.

2) Ambassador Bridge owner, Manuel "Matty" Moroun financed the Proposal 5 effort

Most voters know that Proposal 6, the bridge vote, is the proposal backed by Matty Moroun.

Fewer know Moroun also got the ball rolling on Proposal 5, as Luke points out above.

State election officials refer to Proposal 5 by the organization that put it on the ballot; the Michigan Alliance for Prosperity.

Who is the Michigan Alliance for Prosperity?

From Bridge Magazine:

Almost all of Michigan Alliance for Prosperity’s money comes from organizations connected to Manuel “Matty” Moroun, owner of the Ambassador Bridge. Liberty Bell Agency of Warren contributed $2,288,921. According to Reuters, Matthew Moroun, son of Manuel Moroun, has been a manager of Liberty Bell since 1994. The second-largest contributor is Lansing attorney Samuel Theis, with $300.

As of last July, the Moroun-backed organization had raised 21 times the amount raised by the organization formed trying to defeat Proposal 5.

3) Limits to taxation are already housed in the Michigan Constitution

In their report on Proposal 5, the Citizens Research Council of Michigan points out that the state has four "tax and expenditure limitations," or TELs, in the Michigan Constitution.

Proposal 5 would add a fifth limitation.

The Citizen's Research Council identifies the other "tax and expenditure limitations":

  • A supermajority is required to raise property taxes used for school operating purposes
  • The Michigan Constitution has state revenue limits which make up the balanced budget requirement
  • The Constitution limits sales taxes and income taxes graduated by base or rate
  • The Constitution puts limits on the imposition of local taxes and the growth of the property tax base

Since 2001, state revenues have remained well under the ceiling set by the Michigan Constitution.

The CRC notes "Michigan has not had a problem of state taxes taking increased percentages of personal income."

4) Governments could make big cuts, or seek to raise revenues in other ways

If you live in just about any Michigan city, you're familiar with local governments trying to pass a millage, or raise fees, or using furlough days to try to keep services in place.Fixing roads, keeping police and firefighters on the streets, and teachers in the classroom takes a significant amount of revenue. In their presentation, the Citizens Research Council put it like this:

  • Less taxes --> fewer services --> affects quality of life issues

The supermajority requirement focuses on state taxes. But as the CRC notes, state taxes can have a big influence on local taxes: 

...when faced with deteriorating financial circumstances, state policymakers may become more likely to cut state appropriations to sub-state entities (counties, cities, villages, townships, school districts, community colleges, universities, etc.) when they are faced with the inability to raise revenue at the state level. This can result in local property tax rate increases or tuition increases at the state universities to keep whole the budgets of sub-state entities.



In these circumstances, your state taxes might be lower, but you could be paying more in things like local taxes, or school tuition. 

5) Michigan's bond rating could be affected, cost of borrowing money could increase 

In their analysis, the CRC notes that nearly all state governments must maintain balanced budgets, and cannot engage in deficit spending. This holds true even when states are faced with an economic downturn. 

The CRC argues, a supermajority requirement would restrict Michigan's ability to raise needed revenue, and that could affect how the market views the state: 

Actions that limit the state’s flexibility to levy taxes could reduce the confidence of the rating agencies that the state will have the ability to apply timely responses to deteriorating financial circumstances.

If the state's bond rating is lowered, the cost of borrowing goes up. 

If Michigan voters pass Proposal 5, the state would become the 10th state in the U.S. adopting the most restrictive tax policy.

Currently Arizona, California, Delaware, Louisiana, Mississippi, Nevada, Oklahoma, Oregon, and South Dakota have constitutional requiring supermajority votes to enact any type of tax increases.