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August 10, 2010
Report 360-12

Michigan Constitutional Issues: Article IX – Finance and Taxation

At the November 2, 2010 general election, the voters of Michigan will decide whether to call a constitutional convention to revise the 1963 Michigan Constitution. The question appears on the ballot automatically every 16 years as required by the Constitution. The Constitution provides that a convention would convene in Lansing on October 4, 2011. If the question is rejected, it will automatically appear on the ballot again in the year 2026.

The Citizens Research Council of Michigan takes no position on the question of calling a constitutional convention. It is hoped that examination of the matters identified in this paper will promote discussion of vital constitutional issues and assist citizens in deliberations on the question of calling a constitutional convention.

The power to tax and the disposition of the revenues collected involve two of the essential characteristics of civil government. This analysis examines several provisions in Article IX, “Finance and Taxation,” of the Michigan Constitution and issues related to them that a constitutional convention might consider: state and local tax limitations; state tax structure; local tax structure; pension and other post-employment benefit funding; state borrowing; and, earmarking of state revenues for specific public programs. Neither the list of foregoing issues nor the presentation that follows is intended to be exhaustive.

Introduction

Article IX has been the subject of the most attempts to amend the Constitution (29 proposed amendments), indicating the importance of the issues contained therein. The article has been successfully amended 10 times, most recently in 2006. The two most significant amendments were Proposal E of 1978 (Headlee Amendment) and Proposal A of 1994; both dealt with multiple sections and both created tax and/or spending limitations.

Constitutional Convention Issues

A key purpose of a state constitution is to limit the governmental power of the state. That principle is of particular importance with respect to the power of the government to tax and the interest of the people to limit that power. Article IX, “Finance and Taxation,” of the Michigan Constitution contains various limitations upon the otherwise plenary power of the Legislature. These limitations range from prescribing the proportion of value at which property may be taxed, to requiring voter approval before units of local government may increase certain taxes and indebtedness, to limiting the forms and rates of taxation (state and local), to specifying how the revenues from certain taxes are to be expended. Many of these provisions were contained in the Constitution when it was adopted, while others were added subsequently through amendments approved by voters.

The level of detail which the constitution should contain with respect to taxation was an area of considerable disagreement at the 1961 Constitutional Convention. Many delegates believed that the legislature should be free to determine the level and type of taxation as circumstances arose, while other delegates expressed the view that the legislature should not be allowed complete discretion. In the end, convention delegates agreed to provide the legislature with a “power of the purse” that is bound by constitutional limitations pertaining to the type of taxes that may be employed and the rates of certain taxes that may be levied. Subsequent amendments to the Constitution added further limitations to this foundational legislative power. A new convention might begin by reexamining this fundamental question about the proper role of the state constitution relative to the legislature’s “power of the purse.”

August 10, 2010
Report 360-12

Michigan Constitutional Issues: Article IX – Finance and Taxation

At the November 2, 2010 general election, the voters of Michigan will decide whether to call a constitutional convention to revise the 1963 Michigan Constitution. The question appears on the ballot automatically every 16 years as required by the Constitution. The Constitution provides that a convention would convene in Lansing on October 4, 2011. If the question is rejected, it will automatically appear on the ballot again in the year 2026.

The Citizens Research Council of Michigan takes no position on the question of calling a constitutional convention. It is hoped that examination of the matters identified in this paper will promote discussion of vital constitutional issues and assist citizens in deliberations on the question of calling a constitutional convention.

The power to tax and the disposition of the revenues collected involve two of the essential characteristics of civil government. This analysis examines several provisions in Article IX, “Finance and Taxation,” of the Michigan Constitution and issues related to them that a constitutional convention might consider: state and local tax limitations; state tax structure; local tax structure; pension and other post-employment benefit funding; state borrowing; and, earmarking of state revenues for specific public programs. Neither the list of foregoing issues nor the presentation that follows is intended to be exhaustive.

Introduction

Article IX has been the subject of the most attempts to amend the Constitution (29 proposed amendments), indicating the importance of the issues contained therein. The article has been successfully amended 10 times, most recently in 2006. The two most significant amendments were Proposal E of 1978 (Headlee Amendment) and Proposal A of 1994; both dealt with multiple sections and both created tax and/or spending limitations.

Constitutional Convention Issues

A key purpose of a state constitution is to limit the governmental power of the state. That principle is of particular importance with respect to the power of the government to tax and the interest of the people to limit that power. Article IX, “Finance and Taxation,” of the Michigan Constitution contains various limitations upon the otherwise plenary power of the Legislature. These limitations range from prescribing the proportion of value at which property may be taxed, to requiring voter approval before units of local government may increase certain taxes and indebtedness, to limiting the forms and rates of taxation (state and local), to specifying how the revenues from certain taxes are to be expended. Many of these provisions were contained in the Constitution when it was adopted, while others were added subsequently through amendments approved by voters.

The level of detail which the constitution should contain with respect to taxation was an area of considerable disagreement at the 1961 Constitutional Convention. Many delegates believed that the legislature should be free to determine the level and type of taxation as circumstances arose, while other delegates expressed the view that the legislature should not be allowed complete discretion. In the end, convention delegates agreed to provide the legislature with a “power of the purse” that is bound by constitutional limitations pertaining to the type of taxes that may be employed and the rates of certain taxes that may be levied. Subsequent amendments to the Constitution added further limitations to this foundational legislative power. A new convention might begin by reexamining this fundamental question about the proper role of the state constitution relative to the legislature’s “power of the purse.”


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