Legislature should slow its race to eliminate personal property tax
For local governments across Michigan, budgets are looking a lot less grim than they were last year. Ann Arbor is a good example of that. City Council came into this year thinking it would have to cut another 14 positions from the police and fire departments. Instead, council members now are talking about the possibility of adding police and firefighters.
That’s a reflection of how the state economy is improving, and how local governments are beginning to regain their financial footing after years of brutal cuts in budgets and services. Which makes this exactly the wrong time for Lansing to gut local government budgets with another large tax cut aimed at businesses.
Photo courtesy of the Michigan Municipal League
The personal property tax is a levy that businesses in Michigan pay on their equipment, such as computers or manufacturing machinery. Opponents of the tax call it an anachronism that hurts the business climate in Michigan and discourages manufacturers in particular from locating plants or expanding here. There is a legitimate case to be made for that. Other than Indiana, our other neighboring states either don’t tax equipment, or exempt most of it from being taxed, which gives them a competitive advantage over Michigan.
However, the personal property tax also is an important source of revenue, generating some $1.2 billion a year for local governments and schools. Some communities, such as Ann Arbor, don’t rely a lot of that particular tax for revenue, but others are heavily dependent on it. About 30 communities generate nearly a third of their revenue from it.
Republican lawmakers have said that getting rid of the personal property tax is one of their highest legislative priorities in 2012, claiming the move would create more jobs. We’d like to see some proof of that. We believe that when businesses make decisions about where to locate and expand, factors like good schools and quality of life are as important as tax rates, if not more important. Cutting funding for education and local services compromises our ability to be attractive to employers.
Lawmakers who want to eliminate the personal property tax now are saying they can make up most that revenue with money the state will receive as it eliminates tax credits for certain businesses like battery producers. But as the Associated Press recently reported, local officials are skeptical about promises from Lansing to replace lost revenue. They’ve heard that song and dance before.
Local officials say that if the state plans to phase out the personal property tax, they want to see a constitutional amendment that requires the state to replace the lost revenue. We’re not sure this issue rises to a level that would justify amending the constitution. But we are adamant in our belief that local governments and schools have been hit hard enough by budget cuts in recent years, and deserve to be protected from being slammed again at a time when they are experiencing a fragile economic rebound. While the current proposal is a phased approach, it still only calls for replacing about 80 percent of the lost revenue, which is inadequate. The revenue should be fully replaced.
A huge tax cut was handed out to Michigan businesses last year - one that, admittedly, manufacturers did not share in. Most manufacturers fared better under the much-maligned Michigan Business Tax that was done away with last year, and actually are paying more with the corporate income tax that replaced it. We understand their unhappiness. Still, we’d like to see some hard evidence that the tax cut enacted last year is really creating new jobs before the state undertakes yet another major tax overhaul.
We don’t see what the rush is to eliminate the personal property tax. If this issue is being pushed through the Legislature without an iron-clad plan for replacing the lost revenue, we call upon our local representatives to vote against it.
(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board at AnnArbor.com.)