Proposal 1 would make major changes to state tax policy. It would increase the sales and use tax rates, replace the current fuel tax with a new and higher one and increase some vehicle registration fees. All told, this would increase state taxes by $2 billion in 2016.
That increased revenue would largely go to pay for road construction and maintenance. In fiscal year 2016, taxpayers and motorists would devote $1.24 billion to paying down debt owed by the Michigan Department of Transportation and putting more money into the Michigan Transportation Fund. The other 37 percent of new revenue in 2016 would go to public schools, local governments, the state’s General Fund and for boosting the earned income tax credit.
Proposal 1 would make several changes to the Michigan Constitution. It would create a new earmark for use tax revenue to be deposited into the School Aid Fund. It would prohibit the use of SAF revenue to support public universities, but also add several new allowable uses of the same fund. Additionally, Proposal 1 would create a constitutional exemption from the sales tax for fuel purchased for vehicles that operate on the state’s roads and highways. Finally, Proposal 1 would increase the constitutionally allowable sales tax rate from 6 to 7 percent.
With so many moving pieces, it is hard to estimate the impact of this constitutional amendment and series of bills on the typical Michigan resident. A rough cost estimate suggests that a typical household could expect to pay between $477 and $525 more in state taxes in 2016 if voters were to approve Proposal.
It should also be pointed out that the proposed new wholesale tax on fuel is designed to increase at a rate that will exceed inflation. To the extent that the price of road maintenance increases at the same rate as inflation for the Detroit metropolitan area, this feature of the wholesale tax will ensure that road funding will outpace the inflationary increase in road construction costs.
Voting “yes” on Proposal 1 approves these changes to the Michigan Constitution and would put into effect the series of bills that are tie-barred to its passage. Voting “no” would reject these proposed changes and the tie-barred legislation. Based on the projections of future road conditions in Michigan, the state would still need more funding to maintain public roads, so policymakers would probably negotiate new legislative reforms to fund roads if voters reject Proposal 1.