Michigan Gov. Gretchen Whitmer’s proposal to increase the gas tax by 45 cents, which would give Michiganders the highest fuel tax of any state, is overwhelmingly opposed by small business owners, according to a recent poll by the National Federation of Independent Business (NFIB).
Ninety-three percent of NFIB members surveyed said the state legislature should not adopt the tax hike. Less than one-third supported an alternative one-cent increase in the state sales tax to 7 cents to pay for roads. The results of the survey of NFIB members in Michigan were announced on April 3.
“We have a decision to make when it comes to this budget,” Whitmer stated in a presentation to lawmakers on March 5. “If we choose to continue down the path we are on, our roads are going to get much worse, and it’s going to cost more to fix them.”
The legislature and governor must agree on a budget by October 1.
Road Funding Plan
Whitmer proposes to raise the gas tax from 26 cents per gallon to 71 cents per gallon. The tax would rise in stages, beginning in October of this year and reaching 71 cents per gallon in October 2020.
When fully implemented, the higher tax rate would produce an estimated $2.5 billion per year for road and bridge repairs. Whitmer also proposed eliminating $600 million in highway funding transferred from the state’s general fund under the current highway program implemented under Gov. Rick Snyder, so the net increase in spending on roads would be $1.9 billion per year.
Michigan adopted a road funding plan in 2015 that raised the per-gallon tax on gasoline from 19 cents and on diesel from 15 cents, to 26.3 cents per gallon on both. Snyder’s plan also increased vehicle registration fees by 20 percent.
‘Jobs Will Be Lost’
Economic modeling shows a 45 cent gas tax hike would harm Michigan’s economy, says Michael LaFaive, senior director of fiscal policy at the Mackinac Center for Public Policy.
“We estimate that 22,500 jobs will be lost on net balance as a result of this tax hike,” LaFaive said.
Reducing other taxes and spending would be a way to compensate for the higher tax, says LaFaive.
“Offsetting even half of the higher gas taxes with corresponding income tax–and related spending—cuts would result in a slightly positive jobs impact through fiscal 2022,” said LaFaive.
Mackinac’s analysis found fully offsetting the tax hike would not only mean no net job losses, but could create 24,000 additional jobs in Michigan.
“There are still plenty of budget reform ideas to lessen, if not eliminate, the new tax burden proposed by Gov. Whitmer,” said LaFaive.
The tax hike would most harm those least able to afford it, says Charles N. Steele, chairman of the department of economics, business, and accounting at Hillsdale College and a policy advisor to The Heartland Institute, which publishes Budget & Tax News.
“The burden would fall most heavily on the lower middle class and working poor for whom driving is a work necessity and for whom gasoline is a bigger share of their budget,” said Steele.
The state already places a costly burden on drivers, says Mark Brandly, who teaches economics at Ferris State University and is a policy advisor to The Heartland Institute.
“Because of the state’s regulatory apparatus, Michigan’s car insurance rates are 80 percent higher than the national average,” said Brandly. “It’s unreasonable to impose additional burdens in the form of tripling the state’s gasoline tax.”
‘Should Not Trust the State’
There’s no guarantee the state will use the tax hike money for its stated purpose, says Steele.
“Her assertion that this will ‘permanently fix our roads’ is doubtful at best,” said Steele. “The state has typically diverted gasoline tax revenues to other things, and Whitmer’s proposed hike doesn’t change this.”
“The revenue from the previous gasoline tax hike seems to have gone to spending on schools and Medicaid,” said Brandly. “We should not trust the state to use any additional revenues on roads.”
Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.
Michael LaFaive, “Gas Tax Hike of 45 Cents May Kill More than 22,500 Private Sector Jobs,” Viewpoint on Public Issues, Mackinac Center for Public Policy, April 8, 2019: https://heartland.org/publications-resources/publications/mackinac-center-gas-tax-hike-of-45-cents-may-kill-more-than-22500-private-sector-jobs
“Small Business Not on Board With 45-Cent Gas Tax Increase,” press release, National Federation of Independent Business, April 3, 2019: https://www.nfib.com/content/news/michigan/small-business-not-on-board-with-45-cent-gas-tax-increase/