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.
Everyone seems to agree that Michigan’s infrastructure, including its roads and bridges, are a critical foundation in the state’s economic revitalization. The question, as always, is who pays the bill? The governor has proposed several potential revenue sources, including taxing gasoline at the wholesale level, increasing driver registration fees, and local taxing options. Leaders in the Senate are looking at a two-cent increase in the sales tax, with new funds earmarked for the roads.
The League has long argued that using the sales tax for roads isn’t good tax policy. The sales tax is a broad-based tax used to generate revenue for a wide range of public services, and earmarking it for roads removes the legislative discretion needed to use state revenues for those programs and services that are most needed at any point in time.
This is particularly true because of recent changes in Michigan’s tax system that have reduced business taxes and increased taxes on low- and moderate-income families and individuals—with an expected overall loss in state revenue.
It is the state’s gas tax — not its sales tax — that needs reform. It is no surprise that investments in transportation have dropped. The state’s gas tax rate has not been raised from its current level of 19 cents per gallon for 14 years, while the per gallon diesel tax hasn’t been increased in 27 years.
While a gas tax or other tax increases are needed to ensure that Michigan has the roads and bridges required for commerce and tourism, we need to find an equitable way to fund roads.
States on the cutting edge are combining gas taxes that rise automatically with the cost of transportation, with tax credits that take the edge off the inherently regressive tax. The best vehicle for shielding low-income families from rising taxes already exists: the state’s Earned Income Tax Credit, which was reduced from 20% of the federal EITC to only 6%, as part of the tax shift of 2011.
Now is the time to couple an increase in transportation taxes with a restoration of the EITC. If passed together, Michigan could invest in economic revitalization by strengthening both its roads and its families. Sounds like a win-win.
— Pat Sorenson