Gas Tax Hike Another Obstacle to Recovery

MIRS News reports that two Michigan legislators will introduce legislation to increase the state gas tax by 8 cents per gallon and the state diesel tax by 12 cents per gallon.

According to the American Petroleum Institute, Michigan now imposes the nation's 7th highest state tax on gasoline, and the 13th highest tax on diesel. This is because in addition to a 19-cent per gasoline tax and 15-cent per gallon diesel tax, the state levies the 6 percent sales tax on fuel, plus a 0.875-cent per gallon tax that was originally imposed to clean up leaking underground fuel tanks, but was diverted to displace general fund money in the Department of Environmental Quality budget in one of the Legislature's many "fund raids" in recent years.

The sales tax Michigan imposes on fuel does not go to road funding, but to general government spending, mostly for public schools. That's why the state has one of the highest tax rates in the nation, while at the same time politicians, state transportation bureaucrats and road-builder special interests complain that Michigan will lose out on federal road money because we can't come up with the required matching funds.

Under the proposed increase, Michigan would have the fourth highest tax on gasoline, behind only California, New York and Hawaii. This would add yet another obstacle to recovering from the economic death spiral this state appears to have entered.

~~~~~~~~~~~~

PS. I have no philosophical objection to gas taxes, or to spending more money on roads. Among other things, the gas tax is closest thing in government to a pure user fee. Before considering any increase, however, some other issues need to be resolved. First, around 10 percent of the money is skimmed off the top to pay for what former state Senator Shirley Johnson colorfully used to call "those damned empty buses," many of them operated by dysfunctional transit agencies like the Detroit Department of Transportation, rife with corruption and union featherbedding.

Another big chunk of the road money gets sucked into an unconscionable transfer of wealth from taxpayers to union interests in the form of "prevailing wage" laws, "project labor agreements," etc. Plus, Michigan's state and local government full-time employees are getting $5.7 billion more in benefits than they would if their benefits were equal to those of private-sector employees - as long as that bleeding continues there will never be enough money for roads.

Finally, those who would increase gas taxes simply must engage the issue of a 6 percent sales tax already levied on fuel, not a penny of which goes to roads. This is what's responsible for our seventh-highest ranking in this area. Buyers of fuel - including potential job providers assessing this state on any number of metrics including energy cost - simply will not conclude, "Oh, well, only 19 cents of what I pay is actual gas tax, and that's not so high compared to other states." Instead, they will look at the bottom line, which is high compared to others. Michigan is already "Number 1" (or in the "top" five) in too many other negative comparisons, and we just can't afford to add another.

In sum, sure, Michigan could benefit from spending more on roads, but before asking taxpayers to carry a heavier load the political class needs to do some of its own heavy lifting to ensure the current gas tax money is used as effectively as possible.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.