FROM THE MACKINAC CENTER FOR PUBLIC POLICY

 

Spring gas tax proposal would raise taxes $2 billion

On May 5, 2015, Michigan residents will vote on a constitutional amendment and a package of bills that will go into effect if it is approved. The proposal will increase the sales tax from 6 percent to 7 percent, apply the sales tax to internet purchases, raise taxes on fuel, and increase fees on vehicle registration. It will also hike the state’s Earned Income Tax Credit.

Overall, the proposal will increase state tax revenue for fiscal year 2015-2016 by approximately $2 billion, of which $1.3 billion will go to funding the roads — both to expedite current debt and to increase overall road maintenance.

Of the additional $700 million, $300 million would go to public schools, $100 million to local government revenue sharing, and pledges for future spending on local bus and transit agencies.

The increase in the EITC will cost the state budget a further $260 million.

Tax and fee changes:

The proposal raises the state’s sales and use taxes from 6 percent to 7 percent, a 17 percent increase in the rate. This would give the state the second-highest state sales tax rate in the nation, though other states allow local governments to levy their own sales taxes. Increasing the state sales and use tax rates would bring the state government an extra $1.4 billion.


The state government assesses sales taxes and a per-gallon excise tax on motor fuel. The excise tax compiled with vehicle license and registration fees are the primary source of revenue for the state’s road maintenance budget. The state excise tax and the sales tax would be replaced with a new wholesale tax on fuel and applied at higher rates that those currently assessed.

At $2.00 per gallon of the listed price, the state is currently charging 29 cents per gallon in sales and excise taxes. This proposal would increase those rates to 41.7 cents per gallon.


Registration fees for commercial trucks that weigh more than 26,000 lbs will be increased on a sliding scale based on the truck’s weight.


Currently, the state provides relief from annual registration fees as vehicles age. The fees are originally placed on the vehicle’s list price but are discounted upon its first, second and third renewal. This package phases out these discounts on newer vehicles. Electric vehicles will also be subject to higher registration fees.


The change is not expected to raise much revenue in the first few years but is expected to raise $150 million when discounts no longer apply.