No easy path to fix Michigan roads
From the reactions in social media, comments on news articles and dinner table conversation, it would be safe to assume that the Michigan Senate’s plan to increase funding for roads by raising the gas tax is about as popular with John Q. Public as the recent weather we have experienced.
That plan, passed by the Senate (some of whom are term limited), seeks to raise the wholesale fuel tax to 15.5 percent by 2018.
It is estimated that this could more than double the gasoline tax. depending on the wholesale price of gas.
Fortunately for taxpayers, the reception of the plan in the Michigan House (most of whom will have to run for reelection in just two years) is also about as chilly as the recent weather. The push is on to get an increase in road funding through the lame duck legislative session that resumes in the first week of December.
To be sure, the issue of providing adequate funding for our roads is a complicated one. Our current funding mechanism of the pump tax suffers from two primary shortcomings.
First, consumers react very quickly to increases in gasoline prices at the pump. In the economic parlance this is called “price elasticity of demand” which is just a scholarly way of explaining the obvious: When the price goes up, people immediately cut consumption. They carpool, they buy higher mileage vehicles, they just don’t travel as much, etc.
As everyone is aware, the average mileage of a motor vehicle has increased dramatically over the years. All of this means that as growth in the total amount of motor fuel consumed is diminished by these factors, the amount of money raised by a pump tax (or a tax on the wholesale price as proposed by the Senate plan) is also reduced. This makes revenue projections more variable and uncertain over the long run.
Second, Michigan’s policy of charging a sales tax on top of the gas tax with none of the funding going to roads. This inflates the pump price and makes it difficult to raise the gas tax as the total price becomes a serious burden for taxpayers. This is the reason Michigan has one of the highest gas taxes in the nation with little to show for it in terms of overall revenues for roads. If the Senate plan succeeds as proposed, Michigan is likely to capture the title of the highest gas tax in the nation.
Policy pundits and gas tax advocates tend to explain this away by claiming that our real “gas tax” is not that high compared to other states when you take out the sales tax on the pump price. This is groupthink. Nobody in the real world gets to take the sales tax off the pump price when fueling their vehicle. To the average person, the price at the pump is the price at the pump. They could care less how much is sales tax or what percentage of the wholesale price is the current gas tax or how much is for roads or for schools or whatever – it’s what they have to fork over to fill the tank, period.
While Gov. Rick Snyder and state lawmakers have done an outstanding job of turning Michigan around from the “lost decade” of the Granholm years, this is still a difficult time for fuel tax increases. While current gas prices have moderated from the high levels of four dollars or more a gallon, the Senate legislation will place Michigan among the highest gas tax states in the country and any future increases in gasoline prices will only exacerbate this situation.
For Michigan small businesses, raising the pump price of fuel with this tax proposal along with the recent increase in the minimum wage will both put pressure on the bottom line of Michigan’s small and family owned businesses. Add to this the latest round of Obamacare health insurance hikes on small business and it is easy to see how this approach to road funding could jeopardize Michigan’s economic recovery.
At the same time, taxpayers and small business owners alike recognize the need for good roads and adequate funding. The alternative that seems within the realm of the possible in terms of public acceptance and providing needed funding is likely a combination of action by our lawmakers in Lansing and the public in general via a statewide ballot proposal.
The original House funding plan, which was sent over to the Senate in the summer, would have raised about $400 million in revenue for roads without an increase in the gas tax by redirecting general fund dollars. In other words, by prioritizing general fund spending, $400 million dollars that would probably have been spent on something else would be earmarked for roads. Add to this a one percent increase in the state sales tax (from 6 percent to 7 percent) that would be earmarked for roads only and you would generate approximately another $1.2 billion for a total of about $1.6 billion. All of this would avoid an increase in the tax at the pump.
Some lawmakers have claimed that putting the issue before the voters for approval is “avoiding the job they were sent here to do.” This is nonsense. It is our Constitution that requires a vote of the people to raise the sales tax. That’s the process for pursuing this funding alternative. Lawmakers are doing their job by putting this forward as a serious proposal for the voters to decide. It would also put the road funding advocates in the position of having to make their case for increased funding to the people directly instead of lobbying lawmakers alone for a tax increase at the pump.
If the Legislature cannot muster the votes to put this decision before the people for a vote, perhaps it is best for them to head home and let the Legislature voters just elected tackle it next year.
Charles Owens is Michigan director of the National Federation of Independent Business.