Report Fuels Effort to Double Michigan’s Gas Tax Hike

Published June 14, 2010

A report commissioned by the Michigan Chamber of Commerce supports doubling Michigan’s gasoline tax and vehicle registration fees to save 12,000 jobs and hundreds of millions of dollars of federal transportation aid.

Tax watchdogs scoff at the notion higher taxes and fees can help a state already reeling from high unemployment.

“Michigan’s economy will not fully recover without a first-class network of roads, bridges and transit systems—period,” said Michigan Chamber of Commerce President & CEO Rich Studley in announcing the report.

The study by the Anderson Economic Group of East Lansing suggests doubling vehicle registration fees and taking the gasoline tax from 19 to 38 cents a gallon. It also recommends doubling the state’s annual baseline transportation spending to $4.37 billion.

This would create a net 15,000 jobs, the report claims.

Budget Lacks Matching Money
Without the tax and fee increases, Michigan could lose approximately 12,000 jobs, mainly in road and bridge maintenance and construction, and about $475 million in federal transit aid, according to the report. Michigan would lose the aid because the state budget is about $84 million short of the amount the state needs to put up for a federal funding match.

Bill Shreck, a spokesman for Michigan’s Department of Transportation, said even if the state makes up the $84 million shortfall and receives the $475 million in federal aid, Michigan would still need an additional $320 million to maintain its roads properly.

Economic analyst Michael LaFaive agrees Michigan needs to increase funding for its transportation infrastructure, but he cautions any tax increase for that purpose has to be met with tax cuts elsewhere in the budget so that the state does not have a net tax increase. LaFaive is director of the Morey Fiscal Policy Initiative at the Midland, Michigan-based Mackinac Center for Public Policy.

Pay, Perks Strain Budget
LaFaive said he believes political leaders in Michigan are more willing to raise taxes than institute spending reforms. As evidence he cites their failure to address the burgeoning pay, pensions, and health benefit costs of government workers. Those costs are severely straining the state budget, he says.
“The path of least resistance is often the one that leads to reaching ever-deeper into taxpayers’ pockets in Michigan, taxpayers who have already been hurt by the fragile economy,” he said. “However, I do think there will come a point when so many people have left the state of Michigan that the politicians will have to embrace the reforms the Mackinac Center has offered. Ideas like reforming employee pensions and pay take a while to percolate, but the pendulum is swinging back.”

LaFaive said he believes the Anderson Economic Group and state Chamber of Commerce will have a hard time selling sharply higher gasoline taxes and vehicle registration fees because residents first would like to see the state’s Byzantine tax system simplified.

‘Dramatic Reform Needed’
“In this year, selling a near doubling of the gasoline tax is going to be harder than usual, particularly because it is so clearly obvious that Michigan needs dramatic tax reform too,” LaFaive said. “Our tax system is highly complicated and hurts jobs and businesses. If we are not careful with further layering of our tax system with new taxes like this gasoline tax, we’d better be careful that residents don’t start using our nice new roads to leave the state.”

The Anderson Economic Group did not respond to requests for comment.

Chris Edwards, a tax policy expert at the Cato Institute in Washington, DC, believes the Anderson Economic Group’s report represents an effort to push up a host of taxes.
“[Politicians] are so desperate now to push up taxes—cigarette taxes, cola taxes, gasoline taxes,” while avoiding broad-based tax increases, he said. “The common driver here is that these proposals are put forth by people like [Michigan] Governor [Jennifer] Granholm, who don’t like markets. They do not understand that all economic growth comes from the private sector. It is the private sector that enables them to grant lavish pay packages to government workers.”

Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.