Lansing — The Michigan House voted Wednesday night to pass several bills that would slash property taxes across the state, but skipped a vote on a bill needed to replace some of the more than $5 billion in lost tax revenue.
The House passed the eight property tax relief bills 57-46, with one Republican, state Rep. Jaime Greene of Richmond, defecting from the GOP majority and the long-absent Democratic state Rep. Karen Whitsett of Detroit making the trip to Lansing for the first time in months to join Republicans in support of the bill.
But the sweeping tax cuts can’t be implemented without the passage of a separate bill levying a loosely defined 6% sales tax on services that has yet to be revealed. Republicans who control the House did not hold a vote on the sales tax hike bill, which remains in committee.
Michigan residents need to see tax relief immediately, said state Rep. Steve Frisbie, a Calhoun County Republican, who noted a ballot proposal collecting signatures last year would have eliminated all property taxes in the state. That citizens’ initiative, known as AxMiTax, fizzled out and won’t be on the ballot this fall.
“They realized that our property taxes are too high and they demand that we take action now,” Frisbie said.
State Rep. Stephen Wooden, D-Grand Rapids, said residents need targeted property tax relief, not widespread cuts that would undermine the ability to provide essential services.
“Michiganders are struggling. I know we all feel it,” Wooden said. “We can do property tax reform in a responsible way, in a way that doesn’t hang hardworking Michiganders, schools, fire and police departments, and local economies out to dry.”
Greene, in a statement after her no vote, said she supports “real, responsible” property tax changes but said the House Republican bill falls short of doing so while securing essential services.
“This package is being sold as property tax relief, but when you read the bills, it is much more complicated than that,” Greene said. “It repeals existing revenue sources, changes how taxable value works when homes are sold, eliminates remaining personal property taxes, and creates a new 6 percent tax on services to try to backfill the losses.
“That is not simply tax relief,” she said. “That is a tax shift.”
The legislation moves next to the state Senate, where it is likely to face headwinds with the Democratic majority, which has entertained more targeted property tax cut proposals.
It is not clear when the House will pass the accompanying sales tax increase on luxury services, without which the rest of the bill package cannot become law.
House Speaker Matt Hall, R-Richland Township, maintained that K-12 schools would be held harmless despite the wide-ranging cuts to the property taxes that support them. The “luxury tax” will help with that, he said.
“It’s our intent to negotiate the details of that with the Whitmer administration during budget negotiations,” Hall said.
All combined, the four property tax cuts passed by the House on Wednesday are estimated to result in a tax revenue loss that could progress from $5.5 billion to $7.5 billion a year, according to a series of nonpartisan House Fiscal Agency analyses. When Hall first announced the plan, he pegged the projected revenue loss at about $5 billion.
The House’s proposal to impose a 6% service tax did not advance from committee Wednesday and lacks any details regarding which types of services would be subject to the tax. Hall has said previously that the tax would be imposed on luxury services such as private jets, lobbying, limousines, robocalls or newspaper publishing as services that could be targeted.
The cuts passed by the House on Wednesday would eliminate the 6-mill State Education Tax, which is projected to result in a loss of between $3.1 billion and $3.2 billion from the School Aid Fund, according to a House Fiscal Agency analysis.
The cuts would include the elimination of the 0.75% real estate transfer tax assessed on the sale price of real estate, which a nonpartisan fiscal agency analysis pegged between a $475 million and $488 million loss in tax revenue.
Another tax on the chopping block is the so-called “pop-up tax,” an increase in a property tax bill that occurs when a house transfers from one owner to the next in Michigan, uncapping a constitutional limit on the property tax increase on a home’s taxable value.
Under the state Constitution, a property’s taxable value cannot increase by more than the rate of inflation or 5% each year. But when a property is sold, that cap lifts and is reset at a new, often higher taxable value, resulting in a “pop-up” in property taxes.
The elimination of the pop-up tax would result in a tax revenue loss of between $200 million and $250 million in the first year it takes effect, increasing to up to $2 billion in revenue by fiscal year 2035, according to a House Fiscal Agency analysis.
The pop-up tax elimination initially was proposed as a ballot question as it was initially thought a constitutional amendment would be needed to make the change. But Hall argued Wednesday that House attorneys determined the change could be made statutorily, without a ballot question.
“We’ve determined that we don’t need a constitutional amendment to do it,” Hall said.
Lastly, House Republicans signed off on the elimination of the personal property tax.
That bill, largely intended to benefit utility companies, is tied to separate legislation that requires utilities such as Consumers Energy and DTE Energy to pass on personal property tax savings by cutting electric and gas rates for their residential customers. It also requires utilities to freeze rates for two years.
The personal property tax cut would result in decreases to state and local property tax revenue of between $1.7 billion and $1.9 billion, according to a House Fiscal Agency analysis.
eleblanc@detroitnews.com
This article originally appeared on The Detroit News: House passive massive property tax cuts, skips bill replacing revenue
Reporting by Beth LeBlanc, The Detroit News / The Detroit News
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