Proposal 1 is a good deal for everyone in Michigan

Proposal 1 on the Aug. 5 primary ballot is a rare accomplishment for Michigan. If it’s approved by voters, it will kill an anti-competitive business tax without increasing taxes for other Michiganians, while ensuring local governments and school districts don’t suffer any revenue losses. We strongly urge a “yes” vote.

At the heart of the matter is the personal property tax, an inaccurately named levy that has been assessed on the physical assets of Michigan businesses since 1893. Only one other state in the Great Lakes region imposes such a tax, and Indiana does so at a much lower rate than Michigan. The tax discourages capital investment and puts Michigan at a competitive disadvantage against neighboring states when it comes to retaining and recruiting businesses, especially manufacturers that use expensive machinery. Besides the sales tax they pay when purchasing something, businesses in Michigan must also pay the personal property tax, year after year, no matter how old the equipment is.

While the personal property tax has long been unpopular, attempts in the past to repeal it failed for one important reason – the tax is an important part of local government budgets, especially in industry-rich communities such as the Holland-Zeeland area. In the city of Holland, for instance, the personal property tax generates more than $2 million a year, about a quarter of the city’s tax revenue. Understandably, Michigan cities and townships resisted repeal unless they were reimbursed for their lost income.

But after years of stalemate, something unusual happened – a compromise that united the business community and local governments. Legislators came up with a series of tax changes that allows the phase-out of the personal property tax for manufacturers and small businesses while fully compensating local governments for the lost revenue. (Utilities and non-manufacturing businesses with physical assets of more than $80,000 will continue to pay the tax.) It’s the tax reallocation part of the deal that requires voter approval, and that’s what’s in Proposal 1. (That won’t be clear from the ballot summary, which is particularly dense and unilluminating.) The formula shifts revenue from expiring business tax credits and a portion of the state use tax to local governments; in addition, manufacturers will pay an “essential services” tax that’s a fraction of the personal property tax they pay now. No other taxes are increased.

Proposal 1 may sound like a technical, inside-government issue, but it’s important to everyone in Michigan. It is a rare and gratifying example of legislators addressing a real problem and working together to fix it. The proposal enjoys the support of virtually every business group and local government association in the state and faces no organized opposition. Proposal 1 will make Michigan a more attractive place to do business while preserving important local government services. It deserves our support.

– The Holland Sentinel