Proposed constitutional amendment would increase sales and fuel taxes
By Anthony Plescia
In Dec. 2014, the Michigan legislature approved a proposal to amend the state constitution to increase the state sales tax rate from six to seven percent. This proposal will also increase the state’s gasoline and diesel fuel taxes (with adjustments for inflation), vehicle registration fees, dedicate more use tax to the School Aid Fund (SAF) and expand the SAF to cover community colleges and career/technical education.
While the state’s roads are desperately in need of repair, raising taxes is not the way to go. If the proposed amendment is ratified by voters on May 5, tax revenue will increase by approximately two billion dollars. Nearly 71 percent of the additional taxes ($1.427 billion) will come from sales and use taxes while another 23 percent ($463 million) will come from higher taxes on fuel. In the past four years, the state budget has increased by $7 billion, which means existing spending should be prioritized toward road repair.
On Mar. 12, State Senator Patrick Colbeck wrote an editorial for the Detroit News on how to fix roads without raising taxes. He explained how $669 million could be added to the road repair budget in the first year by using the Budget Stabilization Fund to open up currently restricted funds to counter road maintenance. Additionally, if every penny currently paid in taxes at the pump was allocated to road repair, the budget would see a $149 million increase during the same time period. By contrast, the proposed constitutional amendment would only allocate $434 million toward the road repair budget for year one.
One of the laws slated for activation upon approval of the amendment is House Bill 5477, which increases gasoline and diesel tax rates. The current tax rate on gasoline is $0.19 per gallon and diesel is $0.15 per gallon. Under HB5477, the new tax rate for gasoline and diesel will be 14.9 percent. This means if someone purchases 10 gallons of gasoline priced at $3 per gallon right now, that person would currently have to pay an additional $1.90 in taxes; under the new law, the taxpayer would have to pay $4.47 in additional taxes instead of $1.90. Likewise, if a gallon of diesel costs $3 per gallon, anyone buying 10 gallons would have to pay $4.47 in taxes.
Another law to go into effect is HB4630, which increases vehicle registration fees. However, the law does not say anything about whether or not those additional taxes will be deductible from federal taxes. This means taxpayers cannot be certain they will get additional federal tax exemptions because of the higher fees. In fact, they might end up paying more federal taxes.
When speaking with the Detroit News in Jan. 2015, East Lansing economist Patrick Anderson said, “If you drive your car home and park it in your garage, this almost certainly affects you. If you own two cars in your household, this probably affects you. The property tax deduction is more popular than the mortgage interest deduction.” Current federal tax code allows taxpayers to obtain deductions if vehicle registration fees were property taxes. However, the vehicle registration tax was amended to become a straightforward excise tax in lieu of an ad valorem property tax (that is, a tax based on the value of the property owned). Additionally, as many as 1.2 million Michigan taxpayers could end up paying $410 million more because of fewer federal tax deductions.
More information about the laws associated with this ballot proposal can be found in the proposal titled “House Joint Resolution UU (2014)” on the Michigan legislature website.