Anti-Prop 5 ad gets 'no foul' from Michigan Truth Squad

MICHIGAN TRUTH SQUAD ANALYSIS: “Vote No on Proposal 5”

Who: Defend Michigan Democracy, anti-Proposal 5 group

What: radio ad, Internet/TV ad

Truth Squad call: No foul

Proposal 5 would add a constitutional amendment that would require any increase in statewide taxes – new taxes, expanding tax bases, or rising tax rates – be approved by either a two-thirds majority of the Legislature or a statewide popular vote. It is being backed by the Michigan Alliance for Prosperity, which is almost entirely funded by organizations connected to Manuel “Matty” Moroun. Defend Michigan Democracy opposes it, and is funded by health care, senior citizens, labor and various nonprofit groups.

So-called supermajority rules are in place in 17 states, although not all are identical; Michigan, in fact, is one of them, requiring a three-quarters vote in the Legislature to raise statewide real estate taxes.

Questionable statement: “Why is billionaire Matty Moroun spending millions to pass Proposal 5? Because Proposal 5 makes it harder for Lansing politicians to end tax breaks that benefit billionaires like him. He doesn’t care that when other states passed proposals like 5, it caused gridlock that led to devastating cuts to schools, roads and public safety. In fact, after Colorado passed a similar measure, things were such a mess that voters decided to suspend it.” (radio ad)

Gov. Rick Snyder, in opposing Proposal 5, has pointed out that it would have made one of his signature first-term accomplishments impossible. In an interview with Bridge, he said, “I often walk through how we dealt with the Michigan Business Tax. ...We couldn’t just simply eliminate it. We put in a replacement tax – the corporate income tax. It’s much simpler, fair and more efficient. If Proposal 5 would’ve been in the constitution and (the tax plan) did not pass by two-thirds, we would still have the Michigan Business Tax today.”

The nonpartisan Citizens Research Council puts it this way: “These vote thresholds can make it easier to create special tax breaks (commonly referred to as ‘loopholes’) than to close them because closing a loophole would represent a tax base expansion.”

To be sure, that’s sort of a backward way to look at the first assertion made in the ad, but given Snyder’s explanation, it works: If it’s measurably more difficult to make changes to the state tax code, which often involves dropping one tax and replacing it with another, it will have a tendency to cement the current laws in place, even after they’re no longer effective. A two-thirds majority is notoriously difficult to wrangle, especially at a time when charges that a politician “raised taxes” are common in campaign advertising.

Other states with supermajority rules have found it difficult to adapt their tax laws. Colorado passed its Taxpayer Bill of Rights law – known colloquially as Tabor – in 1992, amending its constitution the same way Michigan voters are being asked to do. In 2005, after the early-2000s recession led to years of declining revenues, voters opted to suspend the cap for five years.

Limiting taxes is one thing, but limiting revenue – which can be obtained through many sources that don’t necessarily require supermajorities – is another.

In its analysis, the CRC noted that states with similar tax limitations may get around them by raising fees, tuition and other charges:

“Lawmakers are likely to raise fees and other levies (that would not require supermajority vote requirements) to make up for the inability to raise general state taxes. Similarly, when faced with deteriorating financial circumstances, state policymakers may become more likely to cut state appropriations to sub-state entities (counties, cities, villages, townships, school districts, community colleges, universities, etc.) when they are faced with the inability to raise revenue at the state level. This can result in local property tax rate increases.”

Tracking the “devastating cuts” claims is trickier, as legislatures employ multiple strategies to make up funding losses. However, in California, Bridge reported earlier this fall, funding for higher education has fallen sharply under supermajority rules. State universities used to get about one-third of their funding from the state, but now that share has fallen to 10 percent.

Questionable statement: "But when millionaires and big corporations pay less, middle class families pay more." (TV ad)

This claim is sourced to a report by the Michigan League for Human Services (now the Michigan League for Public Policy), which analyzed aspects of Gov. Rick Snyder’s tax policy earlier this year. Their report claimed that the easing of the state’s business tax burden led to increases for middle-class families:

“... (A) League analysis shows that the new legislation will save a family of three earning $25,000 just $11 for three months in tax year 2012. But the overall tax increase approved last year cost them $40 for the same period, for a net tax increase of $29. On the other end, a family earning $899,000, would get a $230 tax break from the new proposals. Last year’s tax changes only cost that households $2 for the quarter, so they will get a tax decrease of $228.”

Overall impression: State finance is sometimes hard to explain in 30 seconds, and making Moroun, the funder of Proposal 5, the boogeyman works for advertising. However, the ad doesn’t make clear how he would directly profit from such a rule.

Foul or no foul: No foul. Interests tied to Moroun have been the primary backers of Proposal 5. Colorado did enact and suspend for a time its tax limitation law. Supermajority rules have been tied to budget crises in places like California.

Editor’s note: Martin Waymire Advocacy Communications, a Lansing public relations firm, maintains The Truth Squad Web page and provides marketing assistance for the Michigan Truth Squad, helping deliver calls to the public. It has no input on editorial decisions or calls. MWAC is on contract with Defend Michigan Democracy.

The Center for Michigan (the parent company of Bridge Magazine and the Michigan Truth Squad) has been financially supported by a wide range of corporate and foundation supporters. We are grateful to all funders for helping us create and grow a new nonprofit journalism service for Michigan citizens. Those funders have absolutely no role in the editorial decisions of the Michigan Truth Squad or Bridge Magazine.