Michigan Residents Approve Pro-Growth Tax Cut
Michigan voters in August overwhelmingly approved Proposal 1, a measure to cut personal property taxes—taxes levied on businesses for equipment and machinery—by about $500 million a year.
In addition, the 69 percent to 31 percent vote ensures local units of government are reimbursed for the entirety of revenue lost due to the cuts, according to a policy brief released by the Mackinac Center for Public Policy.
Voters were asked “to certify a $500 million reduction in an economically inefficient tax,” said James Hohman, assistant director of fiscal policy and author of the policy brief. “Taxing equipment and machinery discourages expansion and growth.”
He added, “Proposal 1 was very unique because it had no formal opposition. And it was a remarkably clean initiative--it cut personal property taxes in strategic ways to improve the economy. Local governments that normally would have been on the losing end came out even with reimbursement from the state. And unlike Illinois and Ohio, Michigan is reducing its business tax burden without replacement.”
Proposal 1 puts in place legislation, already approved by the legislature, that creates three new exemptions for certain businesses that currently pay personal property taxes. Those exemptions free businesses with less than $80,000 of personal property from all PPT liability; phase in relief for manufacturing personal property that has been subjected to the tax for at least 10 years; and exempt all new manufacturing personal property.
$500M Net Tax Cut
Those exemptions will result in a tax cut of more than $600 million annually but will be offset by a new, smaller tax on personal property that qualifies for either of the latter two exemptions. That is estimated to raise about $117.5 million annually. State and local governments receive about $1.3 billion in PPT revenue currently.
The bills that will become law with the passage of Proposal 1 will cause the state to set aside a portion of the use tax revenue to reimburse local municipalities and school districts that experience a decrease in PPT revenue. The state would accomplish this through a new authority that would levy a use tax and redistribute the money back to local governments.
This “local” use tax will be accompanied by a decrease in the state use tax, leaving taxpayers unaffected. Although the package of bills had been approved, Michigan’s Headlee Amendment required the matter be put to a vote because it creates a new “local” tax.
“The state is going to absorb the revenue lost from these exemptions while cutting the personal property tax,” Hohman said. “It’s a hefty tax cut that should encourage job growth.”
Ted O’Neil (email@example.com) is media relations director for the Mackinac Center for Public Policy.