A non-accountant's view of Proposal 1
by Ken Horn
Recently, on Facebook, I posted my support of Proposal 1, the elimination of the Personal Property Tax (PPT), which will appear on the August 5 ballot. As part of the discussion, my friend and former Mayor of Saginaw, Greg Branch, chimed in with his concerns. I once referred to Greg as (wicked smart), though he seemed to think I forgot a comma between words. He expressed some concerns with the proposal (Which you can view at Greg's blog), which caused me to clarify my opinions.
1. Elimination of the PPT - which is likely to be one of the
most difficult taxes to calculate and manage. This tax is often referred to as
the dumbest tax in America. The PPT is not related to your personal taxes at
home. It is charged to equipment at all Michigan business. It was described once
this way… “If you could take your local business or factory, lift it up, turn
it upside-down and shake it… everything that fell out is subject to the PPT” Forever!!!
Everything that isn’t bolted down or part of the "Real Property", is charged an
equipment tax.
2. Keeping Communities and Schools from Failing – Many communities
are highly dependent on the PPT revenue. Especially towns and cities that have
a large industrial base, such as the City of Saginaw and Thomas Township
(Hemlock Semi-Conductor), just to name a couple. In fact, all local units of
government have seen all forms of revenue shrink. It is a huge problem of
shifting populations that no longer match the existing infrastructures.
To fully
explain the problems with the PPT, I would have to share with you the hours of
testimony that I heard as I sat on the House Tax Policy Committee. To put it in
its simplest form, the PPT taxed newest equipment at the highest rate... and the oldest equipment
at the least. This sets the stage for major investments to be made in other states, around the country, that
charge no PPT or… it causes cities to compete, head to head, for these same investments
by offering local tax abatements.
Between
the U.S. Census years of 2000 – 2010, Michigan lost around a half-million
hardworking, taxpaying residents to jobs in other states. To get these people
to come back to Michigan requires good, high-paying jobs. Good, high-paying
jobs require heavy investment in both equipment and technology. These
investments are the beginning of the rejuvenation of the middle-class. What
else is? So… dis-incentivizing investments in real manufacturing becomes a very bad thing.
Well…
getting rid of the PPT is a good for another reason, it’s the hardest tax EVER
to try and manage. Millions of dollars are wasted every year just to create the
Schedule of Inventory. Townships and cities are just as hard pressed to
calculate and verify the tax as the businesses that have to pay it. Every
factory, dentist’s office and restaurant has to walk around its property each
year, with a clipboard, to re-count equipment they own. All basically for the purpose
of paying a sort of sales tax on stuff they bought many years ago, sometimes dating back to the
mid-1940’s, right here in Saginaw and Genesee Counties.
In 2012,
the PPT was eliminated. It was to be phased out over a 10-year period of time.
Cities and schools were alarmed that they may lose a huge chunk of revenue at a
time when budgets are growing and sources of funds are shrinking, as well.
The easiest thing for Lansing to do, was simply cut the PPT, give the tax break to job-providers and not worry about
its replacement.
That’s
where Proposal 1 comes in. It is designed to protect police, fire and schools
budgets during the transition and beyond. A YES vote on Prop 1 is not a tax increase.
A big portion of the replacement revenue comes from the old Michigan Business
Tax (MBT) credits that were created during the previous administration. As
these credits expire, Prop 1 will dedicate those freed-up dollars to public
safety and education. Undedicated “Sales Use Tax” on cell phones and internet
sales will make up the rest. Where’s there’s a gap, a small, simpler Essential
Services Assessment will be placed on large manufacturers, as gladly agreed to by the
industry.
This is
on the ballot to give the people of the State of Michigan a voice in how their government
is run. Communities are held accountable for their spending, the State ensures
stable budgets without tax increases and large manufacturing facilities will pay a fair share for
infrastructure while it has incentive to actually grow. It’s a win/win/win situation
that has no organized opposition.
I’d be
happy to share my thoughts further, but I’m including a bit of information for
you to review. I hope you’ll support Proposal 1
on August 5, 2014.
