Half-billion a year for Michigan roads lost as gas/diesel taxes lose power, report finds

Contact: Judy Putnam at (517) 487-5436
Dec. 14, 2011

Michigan is losing out on more than a half-billion dollars a year for road repair and construction because it hasn’t updated its gasoline tax for 14 years or its diesel tax for nearly three decades, a report released today from the Institute on Taxation and Economic Policy concludes.

The report, Building a Better Gas Tax: How to Fix one of State Government’s Least Sustainable Revenue Sources, argues that  the reluctance of state legislatures to increase gas taxes means that transportation costs are outstripping the ability to pay for them and states have to turn to other options.

In Michigan, for example, some state senators have suggested a 1 cent increase in the general sales tax to be targeted to roads. Gov. Snyder, meanwhile, has called for a switch from the gas tax to a tax on wholesale prices along with a local option to increase vehicle registration fees.

“Raising the 6 cent sales tax to 7 cents to pay for roads would hit low-income families hard no matter how much they actually drive,’’ said Michigan League for Human Services President & CEO Gilda Z. Jacobs. “We think the better option is to leave the sales tax revenue in place for general expenditures and pay for road repair and construction the traditional way, through gasoline and diesel excise taxes.’’

The report finds that Michigan has not raised the 19-cent per gallon gas tax for 14 years and the 15-cent per gallon diesel tax for 27 years. If those taxes had simply kept up with inflation, those taxes would be generating $563 million more a year for transportation costs.

“We’re missing out on a huge source of revenue for transportation. By ignoring this source, we’re putting pressure on the rest of our public structures – schools, health care and public safety. It’s unnecessary,’’ said Karen Holcomb-Merrill, the League’s policy director.

Gov. Snyder’s plan to replace the gas tax with a tax on the wholesale price is to be commended because revenue would generally rise over time, just as the cost of building roads and bridges does.

It’s better to reform the gas tax than to increase the sales tax because it ensures that those deriving the most benefit from roads would be asked to pay the most. For low-income families either a higher gas or sales tax is a real struggle. Policymakers can address that through a full or partial restoration of the state Earned Income Tax Credit.

Read the national press release here.

The Michigan League for Human Services is a statewide, nonprofit and nonpartisan research and advocacy organization, dedicated to achieving economic security for all in Michigan.