Michigan’s Baffling Ballot Question Explained

(Edited: July 31, 2014, 3:30 p.m. to include Ernst & Young graphic map)

A week from today, Michigan voters will head to the polls to perform their democratic duty by selecting party candidates for the November general election. They will additionally face a ballot question that requires, at the very least, the rosetta stone to decipher.

Proposal 14-1, the brain child of the Michigan legislature, reads like this:

prop14-1

prop 1 mailerBy golly, that sounds positively delightful — a “yes” vote will modernize the tax system and create new jobs! If you’re thinking that sure sounds like more trickle-down GOP-speak, you may be right.

There’s no organized opposition to the proposal, and Democratic State Senator Gretchen Whitmer recently wrote a Detroit News op-ed in support of the measure. She qualified her come-lately endorsement of prop 1 explaining that she initially had concerns, which have since been put to rest:

Unfortunately, I didn’t have the assurances I needed to answer those questions as the legislation was hurried through without the opportunity for any real debate, leading me to be one of only two senators to vote against it at the time.

Since then, however, the analyses done by local government officials and fiscal agencies have answered my questions and addressed my concerns. Now that I have those assurances, I’m confident Proposal 1 is right for Michigan.

Let’s take a closer look at what we are being asked to swallow — time to un-encrypt the murky language and parse its potential impact.

Although the proposal doesn’t spell it out, the measure is about eliminating personal property taxes on businesses — instead the ballot language just alludes to “modernizing” business taxes. Lawmakers are asking voters to approve the phase-in of a specific part of legislation they passed a couple of years ago as part of a package of bills, known as Public Act 80, designed to give tax breaks to Michigan’s businesses.

Why would this legislature, renowned for thumbing their nose at the electorate, opt to seek such approval? It’s required by Michigan’s Constitution. Article IX, Section 31, requires voter approval for certain types of changes to the tax code. Because PA-80 is composed of a series of pieces of legislation that are tie-barred to each other, if prop 14-1 goes down, so goes the entire package of tax relief measures for business.

Before we get into the nuts-and-bolts of the ballot measure, let’s first be clear that the primary beneficiaries of this are large corporate entities, not the mom and pop businesses the language implies. GOP lawmakers never grow tired of their rhetoric on tax cuts for “job creators” — although Michigan has yet to see evidence of a correlation between making the rich, richer and growing its economy. Yet, there’s plenty of hard data to refute the Republican mantra.

Owen Zidar, Assistant Professor of Economics at the University of Chicago Booth School of Business, and Faculty Research Fellow at the National Bureau of Economic Research, found the only kind of tax cuts that generate economic growth are quite different from what Republicans would have us believe:

The empirical relationship between tax cuts for the top 10% percent and job creation is negligible in magnitude, statistically insignificant, and much weaker than that of equivalently sized tax cuts for the bottom 90%.

Another Republican myth is that Michigan’s business taxes are among the worst in the nation. In fact, a 2012 state-by-state comparison compiled by Ernst & Young, in collaboration with the Council on State Taxation (COST), found that Michigan business taxes, as a percentage of state revenue, are the third lowest in the nation. The national average is 45.2 percent, and Michigan businesses pony-up a mere 35.8 percent.

E&Y tax map

Source: Ernst & Young report

Additionally, Michigan is notorious for cutting sweet multi-million dollar tax give-aways to attract and maintain business. In their report, Megadeals: The Largest Economic Development Subsidy Packages Ever Awarded by State and Local Governments in the United States, Good Jobs First found that Michigan had made fully 29 outrageously over-the-top corporate tax give-aways — making the state the national leader, with New York coming in second at 23. Michigan forfeited a whopping $7,101,236,000 (yes, billion) to mostly large fortune 500 type companies in return for little, if anything at all.  These bonuses were untethered to any real and measurable job growth — they were nothing more than a trickle-down wish and a prayer.

Understanding this ballot proposal requires knowledge of what the personal property tax is, and who pays it. The PPT is a tax on business equipment collected by local units of government as a substantial portion of their operating budget. Lawmakers want to repeal the PPT and replace it with a more reliable revenue stream for local governments from the 6 percent State Use Tax — not to be confused with Michigan’s sales tax. The state describes the use tax this way:

The use tax is a companion tax to the sales tax. Use tax of 6% must be paid on the total price (including shipping and handling charges) of all taxable items brought into Michigan or purchases by mail from out-of-state retailers. Credit is given for tax paid to another state. Use tax is also applied to certain services such as telecommunications and hotel/motel accommodations.

Use tax revenues are more than double those collected from the PPT. One-third of the use tax goes directly to the School Aid Fund, with the remainder sent to the state’s general fund. The plan is to re-allocate a portion of those general fund revenues back to local units of government, and possibly short-change other state budget priorities, say roads, as an example. Yes, it is robbing Peter to pay Paul.

The League of Women Voters provides a clear explanation of what the referendum intends to accomplish and what its fiscal impact is expected to be:

LWV-prop14-1

Another salient question is whether lawmakers can be trusted to fully fund local units of government under this tax reform. The possibility for monkey business remains — we need look no further than education funding in Michigan. GOP leaders insist that K-12 spending is up, but real dollars flowing into the classroom are down, especially after being adjusted for inflation.

Local units of government are struggling already and, in spite of the Michigan Township Association’s support of this ballot measure, a Nov. 2012 Michigan Public Policy Survey found that local leaders are wary of the plan:

MMP PPT survey

This proposal provides no constitutional cover for municipalities. With most of them already living on the edge, even a small drop in local government revenues would result in either a decrease in services or an increase in debt, or both — leading to the kind of fiscal death-spiral Michigan’s cities are known for.

Another anomaly about the referendum language is who wrote it. Lawmakers designed this camel, which goes a long way in explaining its cryptic nature. Typically, ballot language would be crafted by the office of the Secretary of State.

Craig Thiel, of the Citizens Research Council points out a potential impropriety with the language:

Article XII, Section 2 of the Constitution requires that questions pertaining to proposed constitutional amendments [even though this is not one] be described in not more than 100 words and “consist of a true and impartial statement of the purpose of the amendment.”  Further, Section 485 of the Michigan Election Law states, “The question shall be clearly written using words that have a common everyday meaning to the general public.  The language used shall not create prejudice for or against the issue or proposal.”

…[O]ne phrase in the language could be interpreted to advocate for passage of the proposal, “. . . modernizing the tax system to help small business grow and create jobs in Michigan.”  Further, some people have pointed out that this phrase is not entirely clear….  It is not clear the phrase comports with the “common everyday meaning” requirement of state law.

And to top it off, there is a gross error in the ballot question itself. The final point of the measure says a “yes” vote would “Prohibit total use tax rate from exceeding existing constitutional 6% limitation”. The state use tax is not locked by the constitution. Although the use tax does bear some constitutional caveats, it is ultimately governed by Public Act 94 of 1937, which allows lawmakers to raise the rate without bumping into constitutional limitations.

Voters will certainly find the ballot question baffling — and its fate will likely be decided along party lines due to the vague, yet loaded GOP language.

DSCN0444Amy Kerr Hardin

Read the comprehensive CRC analysis of Prop14-1.

 

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19 Responses to Michigan’s Baffling Ballot Question Explained

  1. Helen says:

    Thank you for explaining this legislative double-talk used to screw the taxpayers of Michigan while providing corporations more free money and no accountability.

  2. Steven Camron says:

    I don’t trust this kind of State Authority, from experience. After the voters approved the Headlee Amendment changing the way schools were funded, they established a local authority as part of the change that never met and never acted to restore lost school revenue! Public schools had to sue the state to get it to fulfill its constitutional obligations, it took 18 years for the cases to go through state courts before a final disposition! I suspect this authority will also never really function and result in less tax dollars for local units of government.

    • Michelle McCulloch and Joni Vernia says:

      Thank you for helping us make educated decisions. You have confirmed our instincts to vote no on this proposal.

  3. Maxine Luke says:

    I thank MLive for explaining this and know that after reading this article and dissecting it in to my brain it will get a no vote from me…..along with the hope that Snyder will no longer be in office either come November.

  4. Laura Leyrer says:

    Thank you! The wording and heavy advertising by proponents of the legislation left a queasy feeling in my stomach, but I couldn’t figure out the wording (and I like to think I’m a fairly bright person!) so I didn’t know why. Now I do. I don’t trust Snyder’s machine and figured it had to be just another way to benefit those who have already gained so much while depriving those who have been hardest hit by Dick’s policies.

  5. Mary Hall says:

    I read the proposal and found that I didn’t understand the concept at all. The phrase about helping small business was a red flag because it is so vague. This sounds like a political ad – not a detailed plan that can be understood. I always vote NO to anything this wordy with out saying a thing.

  6. Bill Nelson says:

    There is also no explanation of what is to happen in local communities who have enacted tax levies to fund fire/police/ambulance in the past. What is to happen to/with these already approved taxes?

  7. Ramona says:

    Thank you, Amy. This is invaluable information. I’ve been looking around for answers since Bridge Magazine’s truth squad gave it an okay, using puny, vague explanations. Something rotten there, and you’ve found it.

    Spreading this far and wide, hoping come November we’ll be rid of these lying thugs and their efforts to hand our state over to the oligarchs.

    • admin says:

      Yep, the Truth Squad gave an all clear to the claim that it’s “double taxation”, which it is — in the same way property taxes are. The PPT is a silly way to collect taxes, but repealing it and placing the burden on another revenue stream is a tax cut, plain and simple. In the Michigan Public Policy Survey, local leaders agreed that the PPT is difficult to manage, but they said the burden wasn’t so great that it was unmanageable altogether.

  8. Natalie Bundy says:

    Amy: Thank you so much for explaining what the potential bill is about. I now know how I will be voting and will be spreading the word!

  9. mark says:

    Ok fine, do I vote yes or no to kill it.

  10. Carolyn Burlingame says:

    This proposal was so confusing. And all the hype has been for voting “Yes.” Which makes me a skeptic from the start. Just lately contrary opinions are finally be found online and I appreciate your take on the proposal. Once again, the local taxpayer is picking up the tab for businesses and corporations. I will be voting “NO”; although with the lack of much opposition out there it most likely will pass. Just don’t understand why the “Dems.” in the Legislature for for this.

    • admin says:

      Carolyn,
      The Dems likely fear a lame-duck GOP remedy if this proposal goes down. They are reluctantly signing-on. And truly, the PPT is one of the silliest, antiquated ways to assess taxes — but Michigan businesses are still on the low end when it comes to contributing to state revenues through taxes. What the state really needs is sensible comprehensive tax reform — not more patches…like our crumbling roads!

      And, you’re correct — it will probably pass.
      Sigh.

  11. Tim O'Brien says:

    Prop 1: “I smell a rat…”

    For average taxpayers warning sirens should sound whenever we’re told how large a consensus there is among establishment interests for any reform. If business and labor, conservatives and liberals, editorial pages and television punditry are joining hands in a Kumbaya chorus, it’s very likely time to ‘duck and cover.’ The plain fact is that the word “bipartisan” means, and only ever applies to, a proposal upon which politicians — regardless of stripe — all agree. Further, experience shows that use of the term “revenue-neutral” ought to be even more alarming. When that phrase is being bandied about average taxpayers would be well-advised to hide their wallets.

    It’s not surprising that even proponents can’t explain the Prop 1 plan to get rid of (or reduce) the onerous, job-killing, and deceptively-named “Personal Property Tax” on equipment and machinery (or some of it) owned by businesses (or some of them.)

    The only thing that can be clearly stated about Prop 1 is that everything about it is unclear.

    The reason the proposal is so convoluted, the ballot description so woefully inadequate (What useful information can voters deduce, for instance, from the claim that passage will “Create jobs”?) and incomplete is the fact that the proposal is just 1/10th of whole. The overwhelming bulk of the reform is comprised of nine pieces of legislation already enacted. The only component that appears on the ballot is the request for voters to approve a concomitant, new “Community Stabilization Authority” to allocate tax revenue, a change that can only be made by the electorate. (Thank you, again, Dick Headlee — and God rest your heroic soul for leaving Michigan taxpayers the legacy of this constitutional protection!) But upon this last piece of the PPT reform hangs the fate of the entire, Rube Goldberg contraption.

    It is important to note, incidentally, that eliminating this pernicious, eternally-penalizing tax that puts the business climate of our state at a competitive disadvantage vis-a-vis her sisters is long overdue. It is also laudable that this is a proposal to do so without leaving local government — the one that provides all the services we actually use in our daily lives — to absorb the cost.

    The worthiness of the goal notwithstanding, the Prop 1 approach of putatively replacing the PPT revenue that would be lost to local government with a portion of the state’s 6% “Use Tax” (corollary of the Sales Tax on products that are either leased or purchased out-of-state) is more than a little suspicious.

    The vagueries of Prop 1 not only attend the extent and application of tax cuts, but also the source of the approximately half-billion dollars that will be required to provide the local compensation. The source, that is, of the funds, not the particular revenue stream from which these are to be drawn. That is explicitly specified as the state Use Tax.

    Since budgeting (as everyone but our money-conjuring, federal government understands) is a zero-sum proposition, it is a safe bet that whatever interests currently lay claim to that half-billion dollar share of Use Tax revenue will not be standing idly by as it is redirected.

    Now, with a state budget of more than $50 billion per year why, one might wonder, specify that an expenditure of a mere 1% of the total be drawn specifically — and exclusively — from this one revenue source?

    I will hazard a guess.

    I suspect the reason for earmarking a portion of the Use Tax — and only the Use Tax — as the designated revenue source is to set the stage for eventually revisiting the effort to impose some form of legally enforceable compliance with this tax on internet purchases. The fact that a substantial number of Michiganders have been making purchases on the web without giving the state its 6% piece of the action has been giving politicians the vapors going all the way back to Gov. Engler.

    The Prop 1 approach to PPT reform will allow that crusade to not only be resurrected, but redoubled. When the newly created tax redistribution authority comes up short of the funds needed to make local governments whole it will provide a marvelous recruiting opportunity for the state government to enlist a host of new and highly motivated allies in their holy quest to wring tribute from Internet purchases.

    Additionally, restricting the revenue source to the Use Tax will allow politicians to claim to have kept their promise that there would be no tax increase as, they will hasten to point out, the new revenue is merely coming from an existing tax that has previously gone uncollected. (Disingenuous at best — the tax rate imposed on Michiganders may not increase, but certainly the tax burden will… by an average of $50 per person!)

    Of course, even if I were familiar with every jot and tittle of this 10-bill package of reform (though it appears I’m far from alone on that), this is all just speculation. But I must say I’m having the same unpleasant experience once so colorfully described by Patrick Henry. To me there is an odiferous whiff of rodent in the air around Prop 1.

  12. ppk says:

    This is a tax give giveaway to Snyder’s corporate cronies at the expense of the middle class. Vote NO on this prop. This prop is on the ballot while many that would help the middle class aren’t. That is enough for me. This is Snyder and Devos and Koch and the Mackinac Center loons trying to squeeze the middle class again. Vote NO. Period.

  13. Eric Busch says:

    Now, I’m a pretty bright guy (I pegged the Reading Comprehension scores at 12.9, or ” College Entrance Level”, while still in Elementary/Grade School, and often tested in the 98th percentile!) and I too found the wording of this Proposal vague and confusing, which is what was intended I’m sure. I’m betting most people will give up trying to read this mess of a word salad and just go by the misinformation of the soft repeated pro Proposal 1 ads and be swayed by the “creating jobs” b.s.

    Republicans keep trying to reinvent the wheel, and keep claiming that their Supply Side Economics (a.k.a. “Trickle Down Economics”, a.k.a. “Piss on the Poor Economics”), which requires magical thinking to work, will save the economy and make us all prosperous if we just give the already rich even more money. It’s the equivalent of thinking: “Gee, this Vampire here sure loves drinking my blood, maybe if I let him keep drinking my blood he will get full and some of my blood will Trickle Down to me and I’ll get some back. I sure hope that happens before I die from Esanguanation!!!” Trickle Down Economics has been tried, over and over again, and the only thing it’s done is to make the rich richer. Tax cuts don’t create jobs, demand creates jobs.

    It’s really too bad they are so short sighted. Only looking at the short term has led to stagnant wages, outsourcing, and gutting of formerly prosperous and successful companies after temporarily inflating it’s “worth” in order to get more short term gain in selling the carcass! While long term thinking leads to reinvestment, paying workers a living wage so that they have discretionary income to spend on your product (or even someone else’s product or service, which leads to that business needing more employees to meet increasing demand, which leads to some of those new employees buying your product, which leads to you needing to increase your workforce too, which leads to economic growth, etc…), wanting happy invested employees and a low turnover, and generally looking towards long term growth, even if it’s slow, instead of short term booms of massive gains followed by busts. All of this is basic economics 101, but by ignoring things like the long-term effects, privatizing the gains while socializing the losses (not to mention just ignoring or forgetting the bad parts, or anything that doesn’t fit the fantasy), and making up facts and figures, and covering fantasy with a patina of rhetorical flourishes disguised as “common sense” they ignore facts and reality to try to hide the fact that every recent economic policy has done nothing for the 99% while making the 1% richer and richer.

  14. Bonnie Block says:

    I am a Libertarian and a conservative (full disclosure). My problem with this bill is the ubiquitous “a newly created special authority for distribution…” What will be the cost of this “special authority” and the ominous and vague term “modernizing?” If, as I have read, this will result in a $500 million revenue shortfall in taxes, where will the revenue come from to replace these funds or is it possible they will look for ways to trim excesses or waste in spending. There isn’t a household in Michigan or anywhere else, I suspect, where cuts have had to be made. I know it’s unpopular in many circles to be pro-business, but I’d like to ask, when was the last time you or anyone you know got a job, that paid decently from a business whose profits were mediocre? My dad had a business, I have a business, my dream has always been to make so much money that I could afford to hire as many people as I possibly could and pay them a living wage with good benefits and to be able to have the means to take care of my son who is disabled and give him some of the things my parents could never afford because when you own the business, the business owns you. No one seems to take into account the sacrifices business owners made (and make) before they made it big. Since when is being successful a bad thing??
    Because I had the opportunity to work at a hospital in the Development Department (where they work to get donations), I could give a very, very long list of the people who have “made it” in business who have given millions, not just where I worked but many other places. They prefer to remain anonymous, and they are the most humble, kind, and unpretentious people I have ever met and I’m sure you would be shocked to know who they are and just how many there are. Not everyone is like Bill and Melinda Gates who make sure their donations (which we are all grateful for) are public knowledge. Please, let’s stop putting all people of any category into one lump and assume they are one way or the other. Can we please remember we are all Americans and all here, hopefully, to help each other succeed to the highest level of our capabilities and our own desires for whatever level of achievement or ambition we desire, not everyone wants to be a CEO.
    As to Proposal 14-1, if I knew for sure it would help business (and in turn everyone who works for those businesses), I would be all for it. I’m not sure it won’t cost more money than it’s worth, not to mention, more bureaucracy and opportunities for mismanagement at best and fraud at worst.

  15. Christa Schubert says:

    Thank you for the explanation of PPT and breakdown of the proposal language. Though I think that removing the burden of maintaining the PPT for local government/organizations that might be, unfortunately, under-staffed could be a positive, there is some unnecessary language in there about capping sales tax, and I am not entirely convinced that school funding will not be effected

  16. Michelle McCulloch and Joni Vernia says:

    As young, educated professionals there reasons to listen to your instincts. If something does not sound right, or sounds too good to be true, trust your instincts because it probably is. We are voting no after taking the time to make an informed decision based on available facts and distrust of the follow-through of our current michigan legislature.

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