Memorandum 1120, September 2012
On November 6, 2012, Michigan voters will be asked to amend the 1963 Constitution to require either an affirmative vote of two-thirds of the members serving in each chamber of the Michigan legislature (House of Representatives and Senate), or an affirmative vote of Michigan electors at a November election in order to; a) impose new state taxes, b) expand the base of a state tax, or c) increase the rate of a state tax. Proposal 2012-05, supported by the Michigan Alliance for Prosperity, was placed on the statewide ballot by citizen initiative.
The proposal would add a new Section 26a to Article IX (Finance and Taxation) of the 1963 Michigan Constitution. Proposal 2012-05 provides two methods by which state tax increases may occur, either by a supermajority vote in both chambers of the legislature or by a statewide vote of Michigan electors. This report focuses on the issues and arguments surrounding the former method (legislative supermajority vote), including current supermajority vote requirements, the taxes covered, existing state tax and expenditure limitations, and similar requirements in other states.
What Taxes Are Covered?
It appears, from a straightforward reading, that the proposed amendment would affect only state taxes and not include local taxes within the scope of the two-thirds vote requirement. The placement of the provision suggests that it is intended to apply only to state taxes. Proposal 2012-05 would add a new section (Article IX, Section 26a) to appear immediately after the current state tax/revenue limitations contained in the Michigan Constitution (Article IX, Section 26), and would not modify the present constitutional provision that requires local units of government to obtain the approval of a majority of voters for any new tax or for increasing the rate of any existing tax (Article IX, Section 31). The supermajority requirement would apply to all state taxes (e.g., personal and corporate income, sales/use, property, fuel and vehicle registration, and many others), but not state fees or charges (e.g., driver license, recreation, hunting, business, etc.) or the elimination of tax credits (e.g., earned income tax credits or homestead property tax credits). It would apply equally to tax rate increases, tax base expansions for any existing state tax, and enactment of any new state tax.
What is a little less clear from the text of the proposal is whether certain changes to state laws which authorize local governments to levy specific taxes would require a two-thirds vote in each chamber of the Michigan legislature. All local taxing authority, including rate limitations, has its origins in state law. For example, the authority to levy a city income tax (up to a rate of 1.0 percent for residents and 0.5 percent for nonresident individuals for most cities) is contained in the City Income Tax Act (Public Act 284 of 1964). Currently, a majority vote in each chamber is required to increase the maximum resident income tax rate that a city can impose. (It is currently the case, and it would continue to be so if Proposal 2012-05 is adopted, that local voters must decide whether to levy a city income tax or to increase the rate of an existing tax, up to the state maximum.) However, it is unclear whether a supermajority vote would be required to amend the City Income Tax Act to increase the maximum rate(s) if Proposal 2012-05 is adopted. It is worth noting that the amendment refers to taxes “imposed (emphasis) by the state government”, rather than those taxes “authorized” by the state. This use of the word “imposed” suggests that only state tax increases would be subject to the higher vote requirement.