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Economy & competitive position/Public sector

What does an additional penny of gas tax buy?

For each penny of gas or diesel tax, Michigan gets about $45 million for transportation funding needs that include roads.

There are lots of road cost variables, but that $45 million might buy, for example, 23 more lane miles of reconstructed roads or 75 additional lane miles of repaired roads. Or, it could enable the Michigan Department of Transportation to replace 16 bridges or repair 47.

Both fuel and sales tax increases are being offered up in Lansing as ways to find more money to repair Michigan roads. Which is better, and how it affects the public, is a mixed bag.

Gov. Rick Snyder has called for shifting Michigan’s per-gallon gasoline and diesel tax to a percentage tax at the wholesale level, increasing registration fees and allowing local registration fees.

Sen. Roger Kahn, R-Saginaw Township, has legislation that would impose a percentage tax at wholesale and increase registration fees, tied to another measure that would give voters an alternative of approving a 2-cent increase in Michigan’s 6-cent sales tax and dedicating it to transportation funding.

Mike Nystrom, executive vice president of the Michigan Infrastructure & Transportation Association, said MITA supports the sales-tax option provided a statutory solution is passed first. MITA sees the sales-tax increase as better long-term “because it is not tied to the price of fuel, but rather it’s tied to all products and thus it is a consistent source of revenue that would allow for growth over time as well,” Nystrom said.

He said reliance on fuel as a road-funding source is not sustainable, given factors like hybrid vehicles and increasing fuel-efficiency standards that reduce gasoline consumption.

“Any revenue source that is tied to fuel is going to continue to decline as far as a resource,” Nystrom said.

Kahn, asked which he sees as a better source of revenue for funding roads, said that “from the point of view of the roads, and the point of view of the people, I think the sales tax is better.” It involves the public in decision-making, he said, and the “sales tax would grow as the economy grows.”

A penny of Michigan sales tax brings in about $1.1 billion to $1.3 billion.

But others say a sales tax means the general public will pay for those who use the roads the most.

“People that drive lots of miles win, because they’re not being taxed more because they drive more miles. You’re taxing people who are out buying furniture, or out buying groceries,” said John Taylor, chair of the department of marketing and supply chain management in Wayne State University’s School of Business. “The fuel tax is taxing the people that use the roads. The more you use the roads, the more you pay, so it is a perfect user fee.”

Taxing fuel also has the benefit “of rewarding people with fuel-efficient cars,” which is a good public policy goal, Taylor said.

Among the road-using population, fuel taxes hit differently.

Michigan State University professor of economics Ken Boyer said poorer members of the population tend to have more inefficient vehicles than wealthier drivers, so they tend to pay more in fuel taxes. Also producing more in fuel taxes are suburbanites and rural dwellers who tend to drive more than those who live in cities, he said.

An “inner city resident, who doesn’t drive all that much, higher fuel taxes would be a benefit to you because the funding source would be on others,” he said.

Boyer also said switching from Michigan’s 19 cent per gallon tax on gasoline and the 15-cent per gallon tax on diesel to a common uniform rate on all fuels has “the effect of raising taxes on truckers, relative to cars” and eliminating a preference to the trucking industry that has long been “considered to be a subsidy to manufacturing” and the trucking industry in general.

Nearly three quarters of goods shipped every year from sites in Michigan are carried by trucks and another 9 percent are carried by parcel, U.S. Postal Service or other courier services that use trucks for some of the deliveries, according to a 2012 study by TRIP, a Washington, D.C.-based national transportation group.

But the TRIP study also said that “transportation projects that improve the efficiency, condition or safety of a highway or transit route provide significant economic benefits by reducing transportation delays and costs associated with a deficient transportation system.”

Michigan proponents of Snyder’s approach say balancing out higher fuel costs would be improved roads benefiting expedient commerce, business travel and vehicles.

“Our members know that in the short run they will probably pay more … but they know that they’re paying a lot more now in terms of wear and tear on their vehicles, than what good roads will cost them in the future,” said Rich Studley, president and CEO of the Michigan Chamber of Commerce. “The only thing that’s more expensive than good roads, are bad roads.”

Amy Lane is a former reporter for Crain's Detroit Business, where she covered utilities, state government and state business for many years.

6 comments from Bridge readers.Add mine!

  1. Gwen Markham

    A 1 cent raise to the sales tax to pay for roads would hurt the poorest families in Michigan. Many of them don’t have cars, and yet the price of everything they buy (non-food) will go up. Those who use the roads the most should pay the most for their upkeep. There are other ways to raise road revenue. Other states have toll roads, for example.

    Taxing fuel also encourages more fuel efficient vehicles, as well as other conservation measures such as car pooling.

    1. Joe

      Republicans are against raising taxes unless they’re regressive, like an increase in the sales tax that hurts low-income people the most. Tim Skubik just wrote an article in Mlive detailing that the real damage is done to roads by overweight trucks that use diesel fuel that has not seen any tax increases for years:

      Raising the tax on gas for cars that don’t damage our roads and subsidize trucks that do damage our roads isn’t fair to say the least. Skubik calls for amending the laws regarding the size and weight of trucks so they do less damage as many other states without our terrible winters have done.

  2. Jim Kunz

    Interesting article in Politco yesterday about charging drivers based on miles driven.
    If you can get past the Big Brother fears of the populace (not easy), it would be a fair way to levy such a user fee. It allows you to capture revenues from alternative energy vehicles too. We’ve got to get away from a fixed number of cents per gallon in Michigan, which doesn’t keep up with inflation, increased fuel economy trends, or moves away from gasoline/diesel fuel.
    If you really wanted to be creative, you could add a factor based on the weight of the vehicle, to capture more revenue for heavier vehicles or those with more axles, which place more of a burden on our roads and bridges

  3. charlie veneros

    Why doesn’t anyone really look at where all the road funds money goes now and report it to the public. A lot of the funds go to state department coffers for anything from pay increases to health care cost and more help. Common if the money is for roads then spend it on roads not this other BS that the general public does not know about.
    It’s about time this state gets honest with the public that means you and I.

  4. hairman

    PAY THEM 10% of the $$ they save the taxpayers. That leaves 70% to spend on roads at NO additional cost to TAXPAYERS!! SIMPLE.

  5. Sliderule

    Yes, a sales tax type user fee is regressive, BUT we do need a user fee. That could remove the fuel tax completely and charge those who use the roads, highways, airports, waterways, etc. The user fee could be levied against all organizations and persons that use anything that is carried on the transportation network or use the network themselves. There would be no exemptions.
    Thanks for the good series and that has used your work.

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