In May, Michigan voters will have the opportunity to cast their votes in support of a ballot measure that will make it possible for the state to fix our crumbling roads by increasing the state’s sales tax by one penny. The proposal is a win-win for Michigan. Our roads will be improved at last, while making sure families struggling to make ends meet aren’t bearing a larger portion of the cost of the road repairs than the wealthy. Schools, local communities, and public transportation will also receive additional funding.
In late 2014, the governor and Legislature arrived at a compromise to fix the state’s deteriorating roads. They agreed to allow Michiganders to vote on a penny sales tax increase (HJR UU) to raise some of the funding needed to improve roads, and tied the passage of this ballot proposal to 11 other bills. This includes reforming the state’s flat gas and diesel taxes so they are based on the wholesale costs, increasing vehicle registration fees, eliminating the sales tax on gas purchases, and making cost-saving reforms to road construction projects.
Other bills tied to the passage of the ballot proposal would increase funding to schools, local communities, and public transportation and provide tax relief to low-income workers in Michigan.
While Helping Michigan’s Working Families
The ballot measure will also help average Michiganders. If the measure is passed, it will trigger an increase in Michigan’s Earned Income Tax Credit, which helps families struggling to get by on low wages and provide basic necessities for their children. Because families struggling to make ends meet pay a larger share of their income in sales taxes than the wealthy, the sales tax increase has the potential to hit these people harder. The increase in the state Earned Income Tax Credit will make sure that doesn’t happen.
The increase in the Earned Income Tax Credit takes the tax credit back to the level it was in 2011 before the state Legislature raised taxes on low-wage working families. In 2011, they reduced Michigan’s EITC from 20% of the federal credit to just 6%, leading to a $247 million tax increase for working families. This tax increase combined with other 2011 tax changes1 mean that the taxpayers with annual incomes under $19,000 are paying 1% more of their income than previously, while people with incomes over $392,000 continue paying the same.2
Analysis by the Institute on Taxation and Economic Policy shows that the sales tax increase and the increase of the EITC will help low-income working people. After all of the changes in the package are accounted for, Michigan’s lowest earners (annual incomes under $20,000) will experience a net tax decrease.3
A Win-Win for all Michiganders
If the ballot proposal is not passed by the voters in May, the state will have few other options to fix the roads. With state revenue coming in lower than expected, finding the dollars to pay for roads will prove to be difficult, if not impossible.
Increasing the sales tax by a penny provides a fix for the state’s deteriorating roads while increasing funding for schools, communities, and public transportation in a way that also protects low-income families – a win-win for Michigan.
- In 2011, as part of the tax overhaul, many of the state’s tax credits and exemptions were reduced or eliminated, including a reduction in the Michigan Earned Income Tax Credit, modifications to the Homestead Property Tax Credit, and new taxes on pensions. (Pat Sorenson, Losing Ground: A Call for Meaningful Tax Reform in Michigan, Michigan League for Public Policy, January 2013)
- Impact of 2011 Personal Income Tax Changes Enacted into Law, if Fully Phased-in for Tax Year 2013, All Michiganders, 2013 income levels, Institute on Taxation and Economic Policy, January 2015.
- Impact of Transportation and Education Tax Package, if Fully Phased-in for Tax Year 2015, All Michiganders, 2015 income levels, Institute on Taxation and Economic Policy, January 2015.