June 29, 2014 at 1:00 am

OUR EDITORIAL

Vote yes on Prop 1

Personal Property Tax repeal will encourage the business investment Michigan sorely needs

If we want more manufacturing jobs in Michigan, we should stop double-taxing the means of production. (Joe Wilssens photo)

Proposal 1 on the Aug. 5 primary ballot is a confusing tax initiative that could leave voters puzzled about what it actually will do.

So hereís what you need to know:

■Prop 1 would repeal Michiganís Personal Property Tax, which is levied on business equipment.

■The Personal Property Tax, or PPT, is arcane and has been eliminated in all of our neighboring states. The fact that Michigan retains the tax makes it less competitive for jobs and investment.

■The PPT is a double tax that discourages businesses to add the equipment needed to create jobs. Employers must pay the sales tax on whatever they buy, and then pay the PPT every year the equipment is in use.

■Passing Prop 1 will not result in a tax increase for individuals.

■Tax revenue lost to local communities, which are the primary beneficiaries of the PPT, will be replaced by expiring business tax credits. There will also be a new special assessment on businesses to recoup some of the PPT dollars.

The Legislature passed a bill in 2012 that would slowly phase out the PPT, if voters give their approval in the Aug. 5 vote. A no vote would keep the tax intact ó a bad outcome for Michigan. The personal property tax is particularly onerous on manufacturers, which require expensive machines and tools to operate. But it also hits small businesses, whose computers and furniture are taxed.

Phase-out of the tax would begin in 2016 and be completed by 2023. And although repeal of the tax was initially unsettling for local communities, most municipal organizations and officials supported Prop 1 once they were guaranteed 100 percent of lost revenue will be replaced.

In fact, the new formula called for under Prop 1 should provide a more stable revenue base for local governments.

It should be an economic stimulus for Michigan. Businesses now have to weigh the cost of the PPT in making decisions to purchase machinery or computers. With the PPT gone, many businesses are expected to move ahead with replacing aging equipment.

Repealing the PPT should not be seen as yet another tax break for businesses. Businesses fund the full replacement of PPT revenue. Individual taxes will not be impacted at all by passage.

Tax reform is not always about either lowering or raising taxes. As in this case, it is often about focusing on the way the government raises revenue, rather than the amount raised. Michigan communities will have the same level of tax revenue collected from businesses after Prop 1 passes, but it will be raised in a way that is less damaging to their competitiveness.

Everybody wins if Prop 1 passes. Voters should not get caught up in the awkwardly worded language of the proposal, nor in suspicions that itís a backdoor business tax break. It isnít.

Instead, itís a much needed updating of the tax code that will provide local communities with a more stable revenue stream and businesses with a more rational tax burden.