Michigan takes a (tax) plunge

April 01, 1994

Michigan voters made headlines earlier this month when they approved a major shift in the way public schools are financed, ending the state's century-old reliance on property taxes and substituting sales and cigarette levies.

The plan, approved by 70 percent of the voters, increases the state sales tax from 4 to 6 percent and triples the cigarette tax to 75 cents a pack. Property owners, meanwhile, get a huge break, and this no doubt explains the lopsided vote.

Property taxes in Michigan had been increasing rapidly and frustratingly. Voters were turning down mill levies, and some districts had closed early and postponed school maintenance. Republican Gov. John M. Engler, who campaigned energetically for the plan, said, "We were approaching an educational meltdown, and it [the property tax] was the root of the inequities in the per-pupil spending among districts."

But the plan is likely to do much more for taxpayers than for students. It amounts to property-tax relief bound up in "educational reform," and its long-term benefits are chancy at best. Sales taxes and sin taxes are much more volatile than property taxes and much more sensitive to the state of the economy. If recession returns, or if Michigan smokers decide to kick a habit that will cost them $2.55 a pack, the $2 billion raised by these levies is likely to be drawn down rapidly.

The Michigan plan does take a couple of steps toward equalizing educational spending by setting a yearly minimum each district must spend on a student, limiting increases in state spending and capping the spending of the richest districts. But though the plan radically changes the way schools are financed, it isn't expected to have a major effect on the level of spending.

Across the country, legislators, educators and taxpayers will watch this radical departure with interest. Many of them are grappling with lawsuits seeking to make school financing more equal. Without the fanfare of the Michigan plan, other states are reforming without cutting so drastically into property taxes. Kansas has a statewide property tax for schools. Nebraska is giving a portion of income taxes back to the schools (the "piggyback" approach that Marylanders understand), Colorado and Kentucky are placing caps on how much schools can generate in revenue. And 1994 is likely to be the first year since 1985 in which the total burden of state taxes is eased.

In an election year, that's good news for legislators and officials like Governor Engler, none of whom want to be on the side of taxation.

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