House approves 6-month pause of Michigan's 27-cent per gallon gas tax

Beth LeBlanc
The Detroit News

Lansing — The Michigan House voted Wednesday to suspend Michigan's 27-cent-per-gallon gas tax as Republican legislative leaders challenged Democratic Gov. Gretchen Whitmer to join them in blunting the impact of rising gasoline prices.

The legislation, which passed in a 63-39 vote, came after Whitmer and five fellow Democratic governors on Tuesday requested an 18-cent gas tax pause at the federal level as fuel prices have surged due to inflation and oil sanctions placed on Russia because of its invasion of Ukraine.

The Michigan House bill moves to the Senate next and is expected to be passed in the upper chamber next week.

State Senate Democratic leader Jim Ananich has floated a possible plan of instead suspending the state's 6% sales tax on gasoline, which would net a savings of about 24 cents per $4 gallon of gas. Republicans have not indicated support for that plan.

House Speaker Jason Wentworth and Senate Majority Leader Mike Shirkey announced the 27-cent tax suspension plan Wednesday morning in a joint statement a day after Whitmer signed on to a letter calling on the federal government to put a pause on the 18-cents-per-gallon federal gas tax. 

“Why in the world would we write a letter to Congress asking for lower gas prices somehow, someday when we can just step up and fix it ourselves?” said Wentworth, R-Farwell, in a statement. “Michigan has billions of dollars in surplus revenue available and one of the nation’s highest state fuel taxes. The solution here isn’t complicated."

The proposed suspension of the state gas tax from April 1 through Sept. 30 is expected to result in a revenue loss of about $725 million, which House leadership has indicated it would backfill with general fund surplus. Nine Democratic House members voted in favor of the plan.

“This is a serious situation that requires more than letter writing and the magnanimous gesture of asking someone else to foot the bill," Shirkey said in the statement. "Six in 10 Michiganders are living paycheck-to-paycheck, struggling to feed their families, heat their homes and put enough gas in their cars to get to work. Republicans in the Legislature will again vote to help residents keep more of what they earn, but we need the governor to lead instead of abdicating her responsibilities to Washington.” 

Whitmer's office said Wednesday that a federal gas tax suspension was the "best way to bring down the price of gas without impacting our ability to fix the damn roads." Spokesman Bobby Leddy said the Legislature could help Michigan residents feeling pain at the pump by passing a plan the governor proposed that would exempt some retirement plans and increase tax credits for low-income residents.

"Gov. Whitmer is always working to lower costs and save drivers money," Leddy said.

Michigan's average price of gas as of Wednesday was $4.25, according to AAA estimates. The average price a month ago was $3.37. The increase is believed to be the result of higher inflation rates and sanctions related to Russia's invasion of Ukraine.

Michigan's total gas tax — the 27-cent excise tax and the 6% sales tax — was the 11th highest in the nation in 2021, behind states such as California, Hawaii, Illinois and Nevada, according to the Washington, D.C.-based nonprofit Tax Foundation.

The bill passed by the House Wednesday requires the gas tax savings to be passed on "to the end user," but a House Fiscal Agency analysis noted "in practice it is unknown how this provision would be identified or enforced."

"Given the historic volatility of motor fuel prices in response to external events, there is no way to know if the consumer is actually receiving all or any part of the benefit," the agency said. 

Revenue impact

Revenue from Michigan's 27-cent excise tax on gas goes into the state's transportation fund, which is divvied up among state trunk lines, cities and villages, and county road commissions.

The Legislature is planning to backfill the estimated $725 million hole the tax cut would leave with part of the roughly $4 billion general fund surplus the state currently has. 

But some House Democrats said they were unconvinced by the GOP's assurances, noting the backfill plan was not included in the bill authorizing the tax cut. Republicans have said the funding would be included in the annual budget in September. 

"This legislation is a piece of candy," said Rep. Lori Stone, D-Warren. "It's going to taste really sweet, but it's going to dissolve quickly. I cannot in good conscience go back to my community of Warren, Michigan, and tell them why there is no funding to pay for Mound Road and 8 Mile and (Interstate) 696."

Rep. Steve Johnson, the Wayland Republican who sponsored the bill, said the state has the surplus to pay for the gas tax cut, which he said will be critical for the poorest individuals in the state. 

"You have a choice before you," Johnson said. "Either you stand with the working people of Michigan and give them some relief at the gas pump, or you better pray that (House Speaker) Nancy Pelosi comes through for us.”

It's not clear how using some of the surplus to replace lost gas tax revenue would affect plans to also use surplus revenue to support a Republican $2.5 billion tax cut plan awaiting the governor's signature or veto. 

Shirkey and Wentworth noted the governor has yet to sign or veto the $2.5 billion tax cut plan that includes increased deductions for seniors, a personal income tax cut and a $500 child tax credit. But Whitmer has said the proposed tax relief is "unsustainable" and instead touted her plan to roll back taxes on some retirement incomes and increase the Earned Income Tax Credit. 

"Rejecting our income tax cut and passing the buck to Washington, D.C., here doesn’t solve a thing," Wentworth said in the Wednesday statement. "The governor keeps saying she wants to cut taxes, but I’m not sure she’s actually willing to do it. I guess we’ll find out soon.”

Democrats float plan

Senate Minority Leader Ananich, D-Flint, said he is hoping to work with legislative leaders on a different plan that he contends would still provide similar relief. 

Ananich proposed suspending the state's 6% sales tax on gasoline, which would come to about 24 cents per gallon if gas were at $4 a gallon — a total savings that he said would be similar to the excise tax pause proposed by Republican legislative leaders.

If the federal gas tax were also suspended, Michigan residents would save an estimated 42 cents a gallon under Ananich's plan. 

"It’s not about whether or not we need to get people relief. ... It's just how we do it and making sure we do it sooner than later," he said. 

Ananich argued schools and other beneficiaries of sales tax revenue could be held harmless, based on the higher-than-expected revenue the sales tax on gasoline has already brought in. If what's collected so far falls short, Michigan's general fund surplus could bridge the difference, he said.

"We have significant amount of money in our general fund surplus to make sure roads and schools aren’t harmed," Ananich said.

About 73% of Michigan sales tax revenue goes to the School Aid Fund, 10% to local revenue sharing and some goes to a transportation fund, according to a 2014 House Fiscal Agency analysis. 

House Appropriations Chairman Thomas Albert, R-Lowell, said Wednesday he would have to take a closer look at Ananich's plan. 

"Any type of tax relief, if we can get it to the governor’s desk, I’m open to having conversations on that," Albert said. 

Energy independence

The state House and Senate on Wednesday approved resolutions, as part of the gas tax reduction, urging policies that will help the United States to become energy independent, including the "continued safe operation of the Line 5 oil pipeline," a Canadian-based pipeline.

The resolution passed along party lines in a 22-14 Senate vote but received some bipartisan support in the House where eight Democrats joined Republicans to adopt the resolution 62-40.

Democratic opponents in the Senate spoke of the need to move away from fossil fuels to ensure energy independence. 

"This addiction to fossil fuels is not just hurting future generations; it's hurting our consumers today,” said Sen. Jeff Irwin, D-Ann Arbor. "Just like an addict who's not ready for treatment, this resolution is reaching for a fix to stop the sickness.”

Sen. Ed McBroom, R-Vulcan, countered that the impact of high gas prices on consumers is present and growing while the impact of fossil fuels on climate change may not be fully realized for decades. 

"This is a good statement about the current moment, and it's not capitalizing on the disaster going on in the world to get it done," McBroom said. "It's recognizing a reality we already have."

Whitmer in November 2020 called for the shutdown of Enbridge's 68-year-old Line 5 segment through the Straits of Mackinac, but the governor has not moved to block the planned construction of a tunnel to house a new segment of Line 5. She ordered her departments to process permit applications for the tunnel project as they would normally even as she called on the pipeline's closure.

The pipeline has yet to close as Enbridge and the state remain locked in legal battles over the shutdown order in court. 

The $500 million tunnel is awaiting one more state approval before construction starts from the Michigan Public Service Commission as well as permitting approvals from the U.S. Army Corps of Engineers.

Line 5 carries about 540,000 barrels of light crude oil and natural gas liquid. Studies over the impact of a Line 5 shutdown are conflicting, with industry-sponsored assessments predicting large increases in gas prices and opposition-sponsored studies predicting a smaller impact on wallets because of alternative transportation such as other pipelines, rail and trucking.

eleblanc@detroitnews.com

Staff Writer Craig Mauger contributed.