Proposal 1: A Cure Worse Than the Disease?

8/1/14,  11:28am
Correction:  A previous version of this article incorrectly gave the date of the Tuesday primary election as August 8.  The election is on August 5.


The following article contains disturbing imagery, upsetting situations and other references to state government.  If you experience nausea, please use one of the multiple exits provided for your convenience.

When the surgeon announces that he can cut out the cancer--every last bit of it, guaranteed--celebration might seem appropriate.  But the sight of a rusty chainsaw in the operating room should give one pause.

That's the scenario that Proposal 1 offers to Michigan voters next week:  a clumsy method for correcting a perceived [1] problem, a business tax called the Personal Property Tax (PPT).  Many business owners consider it a malignant tumor, since it taxes equipment that could have been purchased generations ago.      

But the method proposed for fixing the problem is so clumsy and primitive, it could destroy neighboring parts of the body politic.  That's one reason we reject it:  this attempt at a cure is worse than the disease.  

You shouldn't have to take our word for it.  We encourage you do to your own reading and research.  We've already thrown one citation at you, above.  You can find the endnotes, including pro and con positions, at the end of this article.  

You will need stamina on your side, however.  Proposal 1 is nearly impossible to understand.  It's as though our surgeon speaks only medical jargon and refuses to explain his strategy in plain English.  Transparency is critical in elections, but Proposal 1 is opaque.  We see good intentions, but they pave a road to a different horror movie altogether.

If you've run out of time to read, our stance is this:  show us another treatment plan, or explain this one better through TV ads, mailers and other media that everyone can access.  If Leatherface [1b] didn't write it and if he's fired as your spokesman, we'll consider it at the next election. 

If you do have time to read, continue on.  We invite you to read this article critically and ask your own questions along the way.  

The lights dim and we begin with a very short bit of history.  The Legislature and Governor Synder have heard and responded to the business sector's teeth-gnashing over taxes since 2011.  The law that eliminated the Michigan Business Tax, for instance, allowed for-profit enterprises to pay less money to the State of Michigan while senior citizens and families with children had to coughed up the difference.  It took two years before the coughing fit started, and it was a surprise for many when it took effect. [2] 

Now, the Personal Property Tax is on the table.  Proposal 1 seeks to eliminate this tax, which collects money based on the equipment a business owns.  Yes, it sounds like every individual's taxes might go down but unless you own a business, no such luck.  [3]

Let's take a look at the actual ballot language that will be staring you in the face on Tuesday, August 8 [4].

Looks simple, doesn't it?  It mentions many things that sound good:  local community, stabilization, modernization, grow, jobs, safety, protection, schools!

Let's look at the text again, marked-up as a teacher might do.    

Still here?  Sorry for spilling so much red ink.  Believe it or not, one news organization calls its own criticism of the language "griping" [5].  We think the poor writing is reason enough to reject the proposal, especially since the authors ought to write more clearly than schoolchildren.  They're full-time legislators, with paid staff.  It's insulting to ask the public for a decision on a question that hides its purpose.  The proper response, on the basis of the wording alone, is to throw it back and ask for a complete rewrite.  

Since that probably won't happen, we've gone ahead and found the answers for questions A-F, posed above, after a lot of reading, checking, double-checking and aspirin.  Additional commentary is offered.

A.  This particular amendatory act does have an official title.  It's called Public Act 80 [6], and it's also known as Senate Bill 822 (sponsors:  Senators Hildenbrand, Jansen, Warren, Moolenaar and Brandenburg), signed into law on March 28, 2014.  The legislators aware of Public Act 80 know that it contains the text of Proposal 1, but the Prop itself doesn't return the favor on behalf of the public:  it makes no mention of Public Act 80.  

Public Act 80 is best understood as the locomotive engine that pulls other pieces of legislation behind it (Public Acts 81, 86, 87, 89, 90, 91, 92 & 93, created by ten Senate bills)  [7].  As a whole, this legislative train cuts the Personal Property Tax and supposedly finds other money to replace it with.   

B.  "Modernization" doesn't explain anything.  We are left to wonder what else will result besides having a new system.  Microsoft Windows has taught us that "upgrading" can result in a systemic screeching halt.

Proposal 1 would certainly change the state tax system.  It would attempt to collect the same amount of money that the Personal Property Tax (or PPT) currently gathers, but through different methods.  20% of the money would (still) come from businesses, but in the form of a new fee.  80% of the money would come from the state's General Fund coffers, with some help from tax credits that the state won't pay out anymore.  Another way of putting this:  the state (and the communities that use the tax money for its own, local services) will be giving up 80% of the money coming in through the PPT.

If you've ever played landlord, well, that's like telling a tenant that you'll cover 80% of his rent while you embark on a get-rich scheme.  How to keep your spouse from flipping out?  Just say, "we'll make it all back over time, I swear!  With this new plan I have, we should break even in, oh, 14 years!"

Public Act 80--that's that one you likely haven't seen--makes the same bet.  In Section 5, it lays out a schedule, between now and 2028, meant to recoup the money lost if the PPT is eliminated. [8]    We'll find out where these scheduled payments are coming from soon.  Really, we're getting there.  I know, not soon enough.  Are you tired of reading?  We're tired of writing.

C.  Small businesses will grow!  New jobs in Michigan!  Well, maybe.  That's assuming a lot.  There is nothing in any of the legislation behind Proposal 1 that requires businesses to expand their operations or hire new people.  They'll probably have more money at their disposal (roughly $500 million, total [9]) if they pay less taxes, but we can't know if they will bank it or buy machinery that'll automate something so that they can cut labor costs. Proposal 1 does not make hiring mandatory in any way.

This is perhaps the most dishonest part of the TV ads and jumbo postcards that promote Proposal 1.  Two of the postcards even suggest "up to 15,000" good-paying, new and local jobs.  Where does such a number even come from?  The postcards cite a pro-Proposal 1 essay by the Small Business Association of Michigan.  President Rob Fowler writes, "This proposal would create 15,000 jobs in Michigan by eliminating the personal property tax on small businesses."  He does not elaborate. [10] 

One is left to wonder if the trickle-down theory--a proven, proven, and proven dead loss in the job-creating arena--might explain the sudden appearance of these jobs.  Just as Public Act 80's plan to reimburse community funds will take 14 to come to fruition, will it take 14 years for the jobs to surface?  What does "good-paying" mean to a business owner?  Is today's good wage still "good-paying" 14 years later?  One is left with no choice but to speculate and wonder.

Stretch out a bit.  Looks like the chair next to you is vacant.

D.  The Local Community Stabilization Authority.  The name is deceiving.  There will not be a new board located in each community.  There will simply be a new STATE board that distributes the money to bona-fide local entities.  This new board will have five members, who will be appointed by the Governor (not elected by citizens).  This board will also have some kind of power to determine how state "right-of-way" authority can be used for landline, cell phone or computer companies.  It's unclear:  the term "telecommunications" is used, and it doesn't seem to have any connection with taxes.  [11]

E.   Police, ambulance, fire and schools:  yes, we all need 'em.  These are good examples of "local purposes," but putting such emphasis on them implies they will automatically improve because of Proposal 1.  Again, under the best of circumstances, they will not be getting more money; they will hopefully get the same amount as now, but from the Authority mentioned above.  As we all know, it's policy, leadership, trained personnel, and on and on, that make the difference.  The promoters of Proposal 1 say that the source of local money will be "more stable."  That's hard to guarantee.  A new but smaller tax on businesses would be part of the stability plan (roughly $100 million).  The other part of it would be money held back from electric battery manufacturers and other special tax credits.  [12]

F.  The Use Tax is not actually limited by the state constitution.  The Sales Tax is nailed into place at 6%, thanks to the word "shall."  But there's a fair amount of wiggle room with the Use Tax, since "shall" and other such words don't pin it down or place limits on it.  [13]  Could the Use Tax, which most of us know as the Internet or out-of-state tax, increase, to cover any shortfalls?  It's possible--and that could mean higher taxes for the consumer.

Final Thoughts

If you've made it this far, congratulations.  You pass the citizenship test and we see the discovery of a Petoskey stone in your future.  If you like, there's more available to read from other sources.  [14]

Our critique of Proposal 1 has tried very hard not to make any judgments on the proposal's goal.  The Personal Property Tax does seem to tax business owners for a second time (after the sales tax that we all pay).  Is that truly unfair?  Business owners also have a few ways to save money, too.  When it comes to filing income taxes, there are credits and deductions that other individuals don't quality for.

We say, if the goal is to cut away the Personal Property Tax, show us another treatment plan, or do a better job of explaining this one.  Way better.  The legislature and the Governor need to hone their surgical skills and learn how to explain their strategy in plain language that isn't dwarfed by the small print (small print that isn't even provided for the curious) [15].

To go ahead with Proposal 1 would be to attempt a risky procedure based on a lot of luck and a certainty about the future that we simply don't have.  

Endnotes:

1.  We'll take business owners word for it, at least for this article.  

1b.  Leatherface is the nickname of the villain in "The Texas Chainsaw Massacre" horror movie.

2.  We reported on this last spring.  http://threepinesgander.blogspot.com/2013/04/2011-tax-changes-hit-home-in-2013.html

3.  It's an old term that apparently applied to households, too, until 80 years ago.  Real Property Tax is the other main business tax, "real" as in real estate, or land owned by the business.  It's this latter tax that most people call "property tax," which would not be affected by Proposal 1.  http://www.michiganinbrief.org/edition06/text/issues/issue-47.htm

4.  http://www.michigan.gov/documents/statewide_bal_prop_status_145801_7.pdf

5.  http://michiganradio.org/post/proposal-1-asks-michigan-voters-weigh-complex-tax-issue

6.  Public Act 80.  http://www.legislature.mi.gov/documents/2013-2014/publicact/htm/2014-PA-0080.htm

7.  Legislation is hooked, or "tie-barred" together.  http://www.crcmich.org/column/?p=659

For specific legislation, see endnote 7.  http://crcmich.org/PUBLICAT/2010s/2014/memo1128.pdf

Senate Bills 821-830, according to http://ballotpedia.org/Michigan_Use_Tax_and_Community_Stabilization_Share,_Proposal_1_(August_2014)

8.  Again, see Public Act 80, Section 5, subsections (a)-(n).

9.  http://www.mackinac.org/20246

10.  https://www.sbam.org/StayInformed/News/newsid438/1580/Proposal-1-deserves-your-yes-vote

11.  page 3, http://crcmich.org/PUBLICAT/2010s/2014/memo1128.pdf

12.  http://www.mlive.com/opinion/index.ssf/2014/07/top_10_questions_and_answers_o.html

For other credits overseen by the state "MEGA Board," http://feedback.jacksonchamber.org/viewissue.php?issue=29

MEGA Board duties (including Brownfield Redevelopment credits) outlined here:  https://www.michigan.gov/snyder/0,4668,7-277-57738_57679_57726-255865--,00.html

13.  Use tax, State Constitution:  https://www.legislature.mi.gov/(S(ajagoxm2m2clluflvm4nx145))/mileg.aspx?page=getObject&objectName=mcl-Article-IX-8

See also:   http://www.legislature.mi.gov/(S(otcdepbgvl5n3gjjg2n2dk55))/mileg.aspx?page=getObject&objectName=mcl-205-93

14.  Prop 1, opposing viewpoints:

http://www.mlive.com/opinion/index.ssf/2014/07/guest_column_proposal_1_might.html

http://www.macombdaily.com/opinion/20140715/proposal-1-could-hurt-struggling-cities

Wayne County Taxpayers Facebook post:
https://www.facebook.com/permalink.php?story_fbid=10152593018197033&id=349202847032

http://www.democracy-tree.com/michigans-baffling-ballot-question-explained/

Proposal 1 popular among Metro Detroit leaders, but one outspoken mayor calls it a gamble

Prop 1, supportive viewpoints:

Newspaper and web conglomerate MLive.com's explanatory video (its editorial board has come out in favor of Prop 1):  http://videos.mlive.com/mlive/2014/07/understanding_proposal_1.html

http://strongandsafecommunities.com/the-problem/

http://Proposal1Facts.com

15.  Normally, the Secretary of State's office, which oversees elections, enforces plain language on the ballot.  The legislature skipped this requirement by inserting the language directly into the law that puts it on the ballot.