Opinion: Eliminate personal property tax in Michigan? Only if it's revenue-neutral

There’s a case to be made that Michigan would be in a better position to retain or attract business -- particularly manufacturing -- if it did not impose this particular tax. However, we haven’t seen any hard evidence that this move would create new jobs.

What we do see is the amount of financial harm that would be done to struggling school districts and local governments in Michigan if this source of tax revenue were done away with. That’s why we would oppose any effort to eliminate personal property taxes unless the lost revenue is replaced and unless the tax is phased out over time to cushion the communities that would be hurt by the move.

According to the Anderson Economic Group, which did an analysis of personal property taxes last November, repeal of the tax would improve the business climate in Michigan even if the revenue were replaced by other taxes. The Anderson Group said other than Indiana, our neighboring state’s don’t tax personal property or exempt a large portion of it from being taxed, which gives them a competitive advantage over Michigan.

(To download a PDF of the Anderson Economic Group report, click here.)

But the personal property tax is a major source of revenue, generating more than $1 billion a year for schools districts and local government. While most local entities take in relatively little personal property tax revenue, some are heavily reliant on it. There are about 30 communities in Michigan that derive more than 30 percent of their property tax revenue from personal property taxes, and eight communities where it accounts for 40 percent of their property tax revenue.

Considering how schools and local government have been hammered by other revenue losses in recent years, this is not the time to deliver another body blow. We believe that when businesses make decisions about where to locate, factors like quality of life and good schools are as important - if not more important — than tax rates. Eviscerating local school districts and government services works against that, and makes Michigan less desirable place to do business.

We acknowledge that the personal property tax is a vestige of an era of manufacturing might in Michigan, and that in the current climate, it gives equipment-heavy industries another reason to locate elsewhere. While our manufacturing base has declined dramatically, it’s still important to our state economy.

There’s a widespread misconception in Michigan that the business tax reform pushed through the Legislature last year created a windfall for corporate fat cats. That’s not the case. Most of the benefit went to smaller businesses. If anything, the reform hurt manufacturers because it did away with an important tax credit that reduced what they were paying in personal property taxes. So their tax burden is going up this year. While we haven’t seen evidence that relentless tax-cutting is the path to prosperity for Michigan, we do believe that Michigan can benefit from a tax system that is fair and predictable — something that could not be said about the much-maligned Michigan Business Tax, which was replaced last year with a corporate income tax. So we’re open to a discussion about the merits of doing away with the personal property tax — but only if it’s phased out and only if it’s revenue-neutral. Absent those two ingredients, we don’t see a discussion here worth having.

(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board at AnnArbor.com.)