LANSING — Michigan House Speaker Matt Hall has detailed a sweeping proposal to cut nearly $5 billion in property taxes across the state. The plan, announced Thursday, targets four distinct taxes and aims to reduce the financial burden on homeowners and businesses.
The proposal from the Kalamazoo County Republican would eliminate the State Education Tax, personal property tax, real estate transfer tax, and the assessment increase known as the “pop-up” tax that occurs when a home is sold. This move sets the stage for significant debate in the state Capitol over tax policy and its impact on state revenue.
Key Takeaways
- House Speaker Matt Hall has proposed a property tax cut package estimated at nearly $5 billion.
- The plan would eliminate four key taxes: the State Education Tax, personal property tax, real estate transfer tax, and the 'pop-up' tax on home sales.
- The speaker pledged to hold schools and local governments financially harmless, but has not yet detailed the mechanism for replacing the lost revenue.
- Elimination of the personal property tax is tied to a requirement for utilities to lower their rates by approximately $1 billion.
- The proposal has already drawn criticism from education groups concerned about potential impacts on school funding.
A Four-Pronged Approach to Tax Reduction
The core of the proposal involves the complete elimination of four separate property-related taxes. If enacted, the plan would represent one of the most significant changes to Michigan's tax structure in years.
Speaker Hall argued the cuts are necessary to make homeownership more affordable and to lower the overall cost of living and doing business in the state.
The Taxes on the Chopping Block
The plan targets several layers of the state's property tax system. Here is a breakdown of what would be eliminated:
- The State Education Tax (SET): A 6-mill tax levied on most real and personal properties. In the 2023-24 fiscal year, this tax generated approximately $2.5 billion for Michigan's School Aid Fund.
- The Personal Property Tax: A tax on industrial, commercial, and utility equipment. The speaker's office estimates its elimination would cut taxes by $1.6 billion.
- The Real Estate Transfer Tax: A 0.75% tax on the sale price of a property, which contributed nearly $400 million to the School Aid Fund last fiscal year.
- The "Pop-Up" Tax: This refers to the uncapping of a property's taxable value when it is sold. Current law limits annual increases, but a sale resets the value to the current market rate, often causing a sharp tax increase for the new owner.
Understanding Michigan's Tax Landscape
In 2022, Michigan taxpayers paid a total of nearly $17.5 billion in state and local property taxes. The proposed cuts would amount to a reduction of more than 28% of that total, signaling a major shift in how the state funds its essential services, particularly education.
The Financial Blueprint and Unanswered Questions
According to preliminary estimates from the Speaker's office, the combined cuts would exceed $4.9 billion even before calculating the savings from eliminating the pop-up tax. The State Education Tax accounts for the largest portion, at an estimated $2.9 billion reduction.
Despite the massive revenue decrease, Hall assured that schools and local governments would be protected from funding shortfalls. However, he did not provide specific details on how the state would replace the lost revenue.
"We need real, bold and meaningful property tax reform and, also, bold reform to lower the cost of homes," Hall stated. "You want to lower the cost of buying and selling the home. You want to lower the cost of having a home and you want to lower the cost of property taxes."
When questioned about potential new revenue sources, such as a sales tax increase, Hall noted there were "a lot of ways" to raise revenue but declined to elaborate. He suggested that finding efficiencies within state government could help backfill some of the losses.
A Push for Lower Utility Rates
A significant condition is attached to the proposal to eliminate the personal property tax. Speaker Hall insisted this cut would only move forward if it was paired with legislation mandating that Michigan's largest utility companies reduce their rates by at least $1 billion.
Utilities and Personal Property Tax
According to a 2023 Treasury report, utility companies accounted for 49.8% of all personal property value in Michigan in 2022. Hall argues that the tax discourages utilities from investing in grid upgrades.
"We’re going to have to require the utilities to lower their rates," Hall said. He argued that removing the tax without a corresponding rate reduction would not provide direct relief to consumers.
Early Reactions and Political Headwinds
The ambitious proposal was met with immediate concern from education advocates. A coalition of school groups, including the Michigan Association of School Administrators and the Michigan Association of School Boards, issued a joint statement criticizing the plan.
They warned that such large cuts could "blow massive holes" in the state budget and treat schools as "piggy banks to be raided for political tax cut talking points."
"Tax policy should strengthen Michigan, not sabotage it," said Peter Spadafore, executive director for the Michigan Alliance for Student Opportunity. "Lawmakers must reject any proposal that threatens K-12 funding and instead commit to stable, sustainable investments in Michigan’s children."
Hall's plan is the largest of several tax relief proposals currently circulating in Lansing. Governor Gretchen Whitmer has proposed a more targeted $90 million property tax relief plan for seniors, while other lawmakers are focused on expanding existing tax credits. The introduction of this nearly $5 billion package ensures that tax reform will be a central and contentious issue for the legislature moving forward.
