Voting yes on Proposal 1 is voting to improve our communities

We all agree that we need better roads in Michigan, but we don’t agree on how we pay for them. With the various strains on the state budget, including a shortfall due to outstanding business tax credits and an increasingly overreliance on federal funds, it’s hard to imagine a proposal that fixes our roads, invests in our schools and local communities, and protects Michigan’s lowest earners.

Vote yes on Proposal 1 to once and for all guarantee funding for safer roads

Proposal 1 meets these objectives while any “Plan B” likely would increase road funding at the detriment of our schools, communities and vulnerable families.

Next Tuesday, voters will decide whether to back Proposal 1, a comprehensive, bipartisan plan or to take a chance with the new Legislature. There is a lot of frustration surrounding Proposal 1 for several reasons. Some people say “it’s too complicated” or “the Legislature punted the issue.” Yes, it is complicated and for good reason: A long-term, structural fix to fund our roads into the future has a lot of moving pieces that must be addressed. It can’t be simple.

But no, legislators did not punt the issue. They devised this plan that must be approved by voters. Raising Michigan’s sales tax requires a ballot proposal.

While Proposal 1 may not be perfect—no policy is—this is pretty good, and quite possibly, the best solution to all of our problems. Proposal 1 contains many benefits:

    • It removes the sales tax from gas purchases while increasing the gas tax to ensure that all of our taxes paid on gas go to support the roads.
    • It changes our flat tax rate to one based on the wholesale cost of gas helping it keep up with inflation so that the tax doesn’t lose its purchasing power and making funds more stable in the long-run.
    • Eliminating the sales tax on gas, which primarily supports schools and communities, means the sales tax must be increased to prevent cuts to schools and local governments.
    • Increasing the sales tax has the potential to hit the lowest earners the most; therefore, with the passage of Proposal 1, the state’s Earned Income Tax Credit would significantly increase from 6% to 20% to help offset the sales tax increase.

The Legislature has given the public a voice in deciding how to fund improvements to our quickly deteriorating and unsafe roads. We cannot sacrifice the possible for the perfect. Every day we wait to find a road funding solution, the costs go up for taxpayers.

Support for Proposal 1 is support for better roads, better schools, and better local communities to create a state where people will want to live, work, and play.

— Alicia Guevara Warren

 

 

A Solution at Last to Michigan’s Crumbling Roads

 

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.

A Fix for Michigan’s Potholes and Bridges

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.

 

Endnotes

  1. 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)
  2. 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.
  3. 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.

 

 

Happy 40th Birthday, EITC!

Today is EITC Awareness Day, and this year marks the 40th anniversary of the widely recognized tool that lifts millions of working families and children out of poverty each year. States have the opportunity to build on the federal credit, which Michigan does. However, in 2011 the state’s Earned Income Tax Credit was cut leaving behind over 15,000 families in poverty in 2012. On May 5, the voters will have the opportunity to restore the credit by supporting an increase in the sales tax by one penny.

The Michigan EITC is only available to families who have earned income from working. The credit ensures that working families are better able to make ends meet. When combined with the federal EITC, working families are lifted out of poverty and children experience better outcomes, such as improved infant and maternal health; better school performance; greater college enrollment; increased work and earnings in the next generation; and Social Security retirement benefits. All of which also benefit Michigan’s economy. (more…)

Gov. Snyder signs Main Street Fairness Act

Today, we applaud Gov. Snyder and the Legislature for strengthening Michigan’s ability to collect sales taxes for online purchases. The League supports the Main Street Fairness Act (Public Acts 553 and 554 of 2014) as it:

Levels the playing field between brick-and-mortar retailers and online retailers by requiring both to collect sales and use taxes and removing an unfair advantage that online retailers currently have;
• Creates a more equitable system for low-income families, who are less likely to make online purchases, by expecting online consumers (usually higher wage earners) to also pay the sales tax on their purchases; and,
• Provides additional revenue, which is especially important since the state is likely to be facing a budget shortfall over the next couple of years. (more…)

Taxing Internet sales as a matter of fairness

Nowadays, with a growing number of people shopping online, it makes sense to collect sales taxes on the items purchased – if the item was bought at a store nearby, we would have to pay the sales tax.

So, what’s the difference? The difference is that over the past year an estimated $482.4 million worth of sales and use taxes from remote sales will go uncollected by the state. The majority (60%) of that is due to e-commerce. (more…)

Fix the roads but don’t make it harder to get to work!

It is without a doubt that Michigan’s roads are among the worst in the country. The state invests the least per capita in our transportation infrastructure than every other state and it costs Michigan drivers hundreds of dollars a year.

However, a decade of budget cuts and historically low revenues, combined with the fact that the gas tax has lost its purchasing power, have made for difficult conversations about how to fix our roads.

The League’s latest report, Road Funding Proposals: Let’s Not Make it Harder for People to Get to Work, released today, concludes that each road funding proposal — whether it recommends an increase in taxes or fees or sets aside current revenues — has an adverse effect on people, especially on those who are already struggling to make ends meet and get ahead in this economy. (more…)

Road Funding Proposals: Let’s Not Make it Harder for People to Get to Work!

 

Improving the state’s roads is critical to economic growth in Michigan. Not only do people depend on the roads and public transportation to get to work, but businesses—and potential businesses—rely on safe roads to transport goods. It is imperative, however, to ensure that people can still afford to get to work if taxes are increased.

Michigan’s roads desperately need repair. Every year Michigan drivers spend an average of $357 on unnecessary repairs to their vehicles due to damage from deteriorated roads.1 Gov. Snyder has indicated that to address the problem, the state needs to dedicate approximately $1.4 billion, and failing to do so will increase the cost to $2.6 billion annually by 2023.

A number of revenue raising proposals have been suggested. Each of these will impact those earning low wages the most. Increasing the wholesale gas tax, however, would be the least harmful. Increasing the sales tax to generate revenue for roads would further increase the negative effect on struggling people in the state. Restoring the Earned Income Tax Credit (EITC), and ensuring that part of the solution is to increase investments in public transportation, would lessen the negative impact on low- and moderate-income working people, making it easier for them to get to work and support their families.

Increasing the Sales Tax Harms People

One proposal would increase the general sales tax and earmark a portion of those revenues for roads. That raises two concerns:

  1. Increasing the sales tax would have a harmful effect on low-income working families.
  2. Dedicating a portion of sales tax revenues to transportation limits the Legislature’s ability to use those funds for other programs and services that might be needed in the future.

The general sales tax is already considered to be the most regressive state tax, consuming nearly 3% of family income for the poorest 20% of families (incomes under $16,000) while only 0.5% for the top 1% on the income scale (income over $331,000). For the average household in the bottom 20%, the annual cost would be about $261.2

The sales tax is a broad-based tax that is used to generate revenue for a wide range of public services. Almost three-quarters of sales tax revenue in fiscal year 2013 went to fund education while a small portion (less than 1%) supported public transportation. With historically low levels of General Fund revenue and following a decade of cuts, dedicating a portion of sales tax revenues for roads would further limit the Legislature’s ability to use those revenues for other critical programs and services, including public schools and public safety.

Replacing the Flat Gas Tax With A Wholesale Tax on Gas

Another proposal to raise funds for roads would replace the current flat gas and diesel taxes with an adjustable rate based on the 12-month average of the wholesale price of gas. Because the flat gas tax rate (19 cents per gallon) has not increased since 1997, it has lost its purchasing power. The wholesale gas tax would rise over time as the price of gas increased, providing a more stable source of revenue for transportation.

While any increase in taxes will have a negative impact on low-income individuals and working families, replacing the gas and diesel flat taxes with a tax based on the wholesale price of gas would likely have the least harmful effect, especially if coupled with other policies to offset the financial burden faced by those working for lower wages. General sales taxes are based on a percentage of the price of a large range of taxable items whereas excise taxes are imposed on a small number of goods and are determined by volume rather than price, like per gallon on gasoline. Recent estimates reveal that while the bottom 20% of earners pay 3% of their income in general sales taxes, they pay less (2.3%) in other sales and excise taxes (i.e., gas, cigarettes, and beer). For the next 20% in income, the difference is even more significant.

Offsetting Recent and Potential Tax Increases

The tax shift of 2011 increased taxes on individuals by 23%, or $1.4 billion, mostly through the elimination of various tax credits and exemptions that were meant to help households earning the least. The reduction in the Earned Income Tax Credit alone increased taxes on low-income workers by approximately $247 million in 2012.3

According to a recent report, over 40% of Michigan households earn too little to provide for basic needs.4 These households include those who are working and still struggle to make ends meet.5 A single parent can spend up to 11% of their income on transportation, whereas a two-parent household with one adult worker can spend up to 18% of their household income.6 Any additional tax increase is likely to increase the number of struggling families in Michigan, which is why it is important to offset any new tax.

Other states with gas taxes that adjust to the cost of transportation have recognized the need to make their gas tax less regressive by combining various tax credits. In Michigan, the EITC is one of the most effective ways to support working families and lift them from poverty. It is already in place and could be expanded, making it the best vehicle for protecting low-income working families from rising taxes. In addition, there are many low-income families that could benefit from improved public transportation systems. Therefore, investing in public transportation as a part of the road funding solution mitigates the impact on low-income working families.

Road funding proposals should make it easier, not harder, for workers to get to their jobs.

 Endnotes

  1. “Michigan Transportation by the Numbers: Meeting the State’s Need for Safe and Efficient Mobility,” TRIP, January 2014.
  2. Calculation is based on an average income of $8,700 for this group as reported by the Institute on Taxation and Economic Policy, “Who Pays? A Distributional analysis of the Tax Systems in all 50 States, 4th Edition.
  3. Jason Escareno, “Cuts to Michigan EITC Raise Taxes on Working Families,” Michigan League for Public Policy, April 2014.
  4. “ALICE, Asset Limited, Income Constrained, Employed, Michigan: A Study of Financial Hardship,” United Ways of Michigan, September 2014.
  5. These households that are working, often more than one job, but still struggle to meet basic needs have been termed ALICE (Asset Limited, Income Constrained, Employed).
  6. “Making Ends Meet in Michigan: A Basic Needs Income Level for Family Well-Being,” Michigan League for Public Policy, March 2014.

Time to move the sales tax into the 21st century

A recent study by the Center on Budget and Policy Priorities concludes that most state sales taxes, including Michigan’s, are ill-suited to a 21st century economy because states have not kept pace with such trends as the growth of the service sector and e-commerce.

The report recommends four steps that Michigan could take to modernize its sales and use taxes to ensure that there is adequate and stable funding for services that are vital to economic growth such as effective public schools, affordable higher education, adequate public safety, and supports for families struggling in low-wage jobs. They are a broadening of the sales tax to include more services, laws to increase the collection of taxes on out-of-state and Internet commerce, the extension of the sales tax to online products such as books, music and movies, and  closing tax loopholes for online travel companies. (more…)

Casting a net on the Net

Legislation requiring Internet companies to collect sales taxes on items sold to people in Michigan was debated in the House Tax Policy Committee Wednesday. Referred to as the Main Street Fairness Act, this bipartisan legislation would help to level the playing field between brick-and-mortar retailers and online retailers.

Local businesses in Michigan are required to collect a 6% sales tax on purchases. Online retailers without a physical presence in Michigan are not required to collect this sales tax. If sales taxes are not collected by the retailer, consumers are responsible for reporting it and paying it. Voluntary compliance, however, is very low. (more…)

We need better roads but low-income families can’t foot the bill

The evidence is overwhelming, whether you read the many studies concluding that Michigan’s roads and bridges are in serious disrepair, or just drive down the state’s streets and highways, trying to avoid the potholes. And, according to Gov. Snyder, the longer we wait for a solution, the more costly it will be — an estimated $1.4 billion per year until 2015 and rising to almost $2.6 billion annually by 2023. (more…)