Last night, the state House passed a road funding package that will raise $600 million in new revenues to help fund road repair and improvements. An additional $600 million for roads would be redirected over time from the state’s income tax.

While not ideal, this plan is better than the one the state came up with earlier this year when it tried to extract $2.0 billion from taxpayers via Proposal 1. The reader will recall that the proposal failed by a historic 80-20 margin. The new revenues from tax and fee increases expected to be generated by the yesterday’s House bill amount to only half of what Gov. Rick Snyder has long wanted. The entire package would be completely phased in by 2021.

Published reports last night indicate that the plan works out as follows:

• A $400 million increase in registration fees (about $40 per passenger vehicle);
• A 7.3-cent increase in the diesel fuel tax and a 3.3-cent hike in the gasoline tax;
• A change to homestead property tax credits;
• An opportunity for income tax relief beginning in 2019 if growth in General Fund dollars outstrips inflation.

Lowering personal income tax rates is a laudable goal, but future policymakers may find it all too easy to justify delaying those cuts by manipulating the numbers of the General Fund. An earlier look at this idea suggested that simply redirecting a portion of General Fund revenues by earmarking tax revenues to other funds would prevent income tax cuts.

Taxpayers have reason to look at this promise of future tax cuts with caution. There are, after all, precedents that a future Legislature could rely on should it choose to not keep the promise. In 2007, the Legislature and Gov. Granholm hiked personal income taxes 11.5 percent and promised that the increase would start getting rolled back after Granholm left office. Once Snyder took office, he and legislators repealed that scheduled tax cut. They permitted a rollback of 0.1 percentage point in the tax rate but scrapped the rest of the promise.

Road funding has been loosely based on the principle of a user fee, by which the people using the roads are the ones who are paying for them in vehicle registration fees and fuel taxes. The principle is only loosely applied because the taxes don’t quite fall exactly on road usage. For example, you pay taxes on the fuels you put into your lawn mower, but it’s not causing much damage to the roads. And there is more tax money being spent on the roads than what is generated by these taxes.

The House plan continues on in that vein — raising taxes tied to road use and fees tied to automobiles to get the money needed for road repairs. To the degree that the House stuck to the five road funding principles we drew from a free-market perspective, we applaud them. But arguably more could be done.

We drew a road map of more than $2 billion in budget cuts and reforms to help lawmakers achieve the goal of putting more money into the roads. Our 35 ideas were highlighted along with two lists of budget reforms produced during the Granholm era that would provide $1.5 billion in gross savings and $2.98 billion in General Fund savings, respectively.

But the House did not even look at budget cuts. Instead, it turned to income tax revenues, which will increase over time, and earmarked a portion of them. In six years, the earmarking will account for $600 million, according to the plan. But in the last two years, tax receipts grew more than that, and they are very likely to grow much more than the plan anticipates. As a result, legislators will be able to devote more money to the roads while still increasing spending on other priorities. In other words, the House plan will not require cuts anywhere in the budget.

The House-passed plan is far from ideal, but little is in politics. It is, however, another step in the right direction. Will the governor and Senate try to persuade the House to reach deeper into the wallets of Michigan citizens, or are they willing to compromise on a plan that takes only half of what the governor has said he wanted in new taxes? Stay tuned. It should be an interesting show.

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