Michigan’s statewide ballot in November will include Proposal 5, an amendment to the state constitution that would require a two-thirds supermajority vote of both the Michigan House and Senate, or a simple majority vote of the people in a November election, to impose new state taxes or increase any state taxes that currently require only a majority vote of the Legislature.
The wording of Proposal 5 states that the amendment “shall in no way be construed to limit or modify tax limitations otherwise created in this constitution.” This language means Proposal 5 would leave unaffected the state constitution’s 1978 Headlee Amendment, which contains a variety of tax and revenue limitations on state and local government. The proposal also would not change Proposal A of 1994’s constitutional requirement of a three-quarters supermajority vote of both the state House and Senate for any increase in the state education property tax.
Sixteen states have a legislative supermajority tax vote requirement, while 30 have a tax or expenditure limit like the Headlee Amendment. Michigan would have both types of limitations under Proposal 5 (and to some extent already does, given the state’s supermajority tax vote requirement for raising state education property taxes).
While a review of the scholarly literature on the two kinds of limitations yields somewhat mixed results, the literature suggests on balance that such limitations are effective at lowering state and local government taxes and revenue. The academic literature also supports the view that lower state tax burdens improve a state’s economy.
If the academic literature suggests a tax limitation provision like Proposal 5 could help the state’s taxpayers and economy, a review of the possible practical effects of the proposal still makes sense. For instance, if Proposal 5 makes tax increases more difficult, would it perhaps deprive state government of necessary revenue, particularly in tough economic times, when tax revenues often fall?
Michigan’s recent history does not suggest that supermajority tax vote requirement would render it impossible to raise taxes. When the Legislature passed a $1.4 billion increase in personal and business taxes in 2007, the Michigan House and Michigan Senate did not meet the two-thirds threshold that Proposal 5 would require. Nevertheless, most of the Republicans who voted against the tax hike ended up voting for much of the spending associated with the new tax revenue. If they had been faced with the possibility of not having this money due to a two-thirds tax vote requirement, many of them might have provided votes for the tax hike after all.
At the same time, it is doubtful that the state would have faced a financial disaster without that tax increase. Mackinac Center analysts have pointed out that state and local governments could reduce spending by more than $5 billion annually simply by benchmarking public-sector benefits to those offered in the private sector. Other savings are possible as well. Failing to increase taxes in 2007 could have forced legislators to make tough but responsible spending decisions that would have lightened the burden on taxpayers during the recession that began shortly thereafter.
Similarly, it is not clear that the higher tax approval threshold would thwart important tax reforms, such the recent abolition of the Michigan business tax, simply because they include increases in some taxes and larger cuts in others. If state legislators were unable to muster a two-thirds supermajority for the individual tax hikes in such a reform, the entire package could be submitted for a vote of the people. The feasibility of this approach seems evident in Michigan voters’ approval of Proposal A of 1994, a package that raised taxes while providing a net tax cut. Notably, Proposal A was more extensive and complex than the recent MBT reform.
It is true that several states — Mississippi, Nevada and California — with legislative supermajority tax vote requirements have been experiencing economic and financial problems. It is unclear, however, that Mississippi’s long history of poverty or Nevada’s recent problems with unemployment (after low unemployment before the recession and a decade of rapid population growth) are related to their supermajority tax policies. California’s state budget problems are sometimes attributed to its supermajority tax vote requirement and to the constitutional spending mandates that are viewed as byproducts of that requirement, but there appears to be a better case that California’s state budget problems are the result of California voters’ decision in 1990 to exclude significant new transportation expenditures from the state’s constitutional cap on state spending increases.
The concern that a supermajority requirement for state taxes could produce a broad shift to higher local taxes appears largely to be guarded against by the provisions of Michigan’s Headlee Amendment. If such a shift were to occur, it is not evident that it would lead to a higher overall tax burden than would have developed otherwise.
Proposal 5 appears likely to provide additional protection against state tax increases. The possibility of such hikes is illustrated by the substantial state gas tax hike proposed earlier this year by the governor. It may be appropriate to ensure state lawmakers take such steps only after developing a broad consensus that more of Michiganders’ private revenues should be claimed as public funds.
* Citations are provided in the main text