Motorists would face higher gas taxes and vehicle registration fees under proposed legislation.
(Editor’s note: This is an edited version of a
commentary that appeared Feb. 2, 2012, in Michigan Capitol Confidential.)
Michigan could potentially have the nation’s
highest gas tax if Gov. Rick Snyder’s proposal to replace the state motor fuel
tax with a higher wholesale tax becomes law.
As of Jan. 1, motorists here pay 57.8 cents per gallon worth of state and
federal taxes, according to the American Petroleum Institute. This includes the
6 percent Michigan sales tax imposed on fuel sales, from which not a dime goes
to roads, although a small amount subsidizes public transportation. Michigan is
one of only eight states that impose sales tax on fuel; the other seven are
California, New York, Hawaii, Florida, Georgia, Indiana and Illinois.
The real problem, however, isn’t that the state doesn’t collect enough money, but that it doesn’t properly prioritize the money it does collect and “skims” too much for other purposes.
The new tax would replace the current Michigan
motor fuel tax of 19 cents per gallon with a wholesale tax, initially levied at
an effective rate of 28.3 cents per gallon — an immediate 9.3-cent increase at
the pump. Assuming no other changes, this would put government’s total take per
gallon here at 67.1 cents, making
Michigan the second highest after New York at 67.4 cents. California and Connecticut would be tied for third
place at 67.0 cents.
But because the new levy would be based on a
percentage of the wholesale price, any sustained increase in oil prices would
gradually translate into additional gas tax hikes. This would be a double
whammy for Michigan motorists, because the 6 percent sales tax on gas already
has this effect. For example, if wholesale prices rose by $1 per gallon and
stayed there for several years, Michigan drivers would eventually find
themselves paying more than 80 cents per gallon in state and federal taxes — by
far the highest in the nation (assuming other states stayed the same).
The governor’s proposal is contained in House Bill
5298, sponsored by Rep. Rick Olson, R-Saline, and Senate Bill 918, sponsored by
Sen. Roger Kahn, R-Saginaw. Under the bills, the rate of the proposed new tax
would be 10.1 percent of the statewide “average wholesale price” over the
preceding 12 months. This rate, however, would be subject to various
adjustments. The highest the tax could go would be the equivalent of 40.0 cents
per gallon, and following the initial 9.3-cent increase, it could rise or fall
by only 1 cent per gallon per year.
To put this in perspective, the current wholesale
gasoline rack price in Detroit — the price paid when the gas is loaded into a tanker
truck at the terminal — is around $2.70 per gallon. Retail prices in the region
currently average around $3.30.
Gas tax hikes are only one component of Gov.
Snyder’s transportation infrastructure proposal. House Bill 5300, sponsored by
Rep. Jud Gilbert, R-Algonac, and Senate Bill 919, also sponsored by Sen. Kahn,
would increase the vehicle registration tax by 67 percent. This annual license
plate tax — which has been called a “Birthday Tax” — is levied on the list
price of a car when new. As an example, the annual registration tax on a
$20,000 car would go from $103 to $172. Other bills in the package would give
counties and a proposed Detroit regional transit authority the power to impose
even higher registration taxes, subject to a popular vote.
No one disagrees that Michigan roads would benefit
from an infusion of new resources. The real problem, however, isn’t that the
state doesn’t collect enough money, but that it doesn’t properly prioritize the
money it does collect and “skims” too much for other purposes.
In addition to the sales tax component mentioned
above — none of which goes for roads — some of the remaining money is diverted
to subsidize city buses, and some is wasted by mandating above-market wages on
road projects through the state’s “prevailing wage” law. Another
seven-eighths-of-a-cent-per-gallon tax originally intended for leaking
underground fuel tank cleanups was diverted to other government spending in a
2004 fund raid, and it continues to be used that way.
Instead of reaching deeper into the pockets of
motorists, Michigan needs to correct these abuses.
Jack McHugh is senior legislative analyst at
the Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission to reprint in whole or in
part is hereby granted, provided that the author and the Center are properly