Sound Road Funding
Michigan House headed in right direction
(Author’s Note: In last week’s Detroit News editorial, “Second term agenda focused on right priorities,” Gov. Snyder noted that a road funding package “was pretty much done.” We hope some of the sound ideas below are contained therein.)
Last May, the Michigan House of Representatives passed a legislative package that would permanently increase annual road funding by around $462 million without a significant tax increase. Some of the measures could theoretically lead to modest restraints on other state spending. The Senate should adopt this or a similar package to move the ball forward on road funding.
Several components passed by the House are worthy of applause, such as dedicating $130 million in sales tax levies currently imposed on fuel purchases to roads. This revenue currently goes to other state spending, but most drivers would probably agree that taxes levied on fuel should be used to maintain roads.
A key bill in the package would redirect one-sixth of the 6 percent use tax levied on gas to roads. This would make around $239 million available for road repairs and construction with no tax increase.
Another bill would require more competitive bidding on road projects, while others would impose performance standards on contractors and require warranties on pavement projects costing more than $1 million. (A 2002 essay by registered professional engineer and current Mackinac Center President Joseph G. Lehman explained why road warranties are “an idea whose time has come.”)
Potential savings from those reforms may be sufficient to roll-back some modest tax hikes that are also included in the package, including $35 million worth of higher vehicle registration fees, and between $8.6 million and $11 million in added fees and fines on oversized and overweight vehicles.
That last item engages a longstanding debate regarding the impact of very heavy trucks on Michigan’s roads. Evidence suggests that heavy trucks may do less damage than people realize because the weight is spread out over more axles and thus, current limits are sufficient.
To the extent some of these levies represent legitimate user fees or reimbursements, they are unobjectionable and may simply be covering costs for services rendered (or road damage inflicted).
If the increase in the revenue from these fee hikes seem all too large, consider that lawmakers have called for between $1.2 billion and $1.5 billion in net new taxes and fees in the past couple of years alone. The Mackinac Center has long said the state should make good roads a higher priority and we believe these ideas provide a path forward. The Legislature has demonstrated a willingness to tackle tough fiscal issues (Michigan Business Tax, Personal Property Tax) in ways that improve the system without unduly burdening taxpayers on net balance.
Now that the election has passed, attention is being drawn again to Michigan roads. The House package passed last May represents a good starting point for translating those demands into action, and in a manner that does not jeopardize the state’s economic recovery. Reprioritizing current state spending to free up more resources for roads could readily complete this project.
For an exhaustive treatment of Michigan’s transportation system and related funding, see the 2007 Mackinac Center study, “Road Funding: Time for a Change.” For a list of 35 major budget reform ideas see the essay “$2.1 in Michigan Budget Reforms.”
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
Michigan Should Lower the Personal Income Tax Rate in 2015
State can afford to cut residents a break
In 2007, Michigan's Legislature and governor hiked the state's individual income tax, extracting more from a struggling private sector in order to avoid government spending cuts. Now is the time to revisit that decision. Tax revenues have grown, the budget is balanced, and this state can afford to be less of a burden on its residents.
There is never a good time to raise taxes, but extracting more from taxpayers is especially inopportune at the onset of a national recession, which was the case in late 2007. The state had already lost one out of every 11 jobs from 2000 to 2007, the worst job loss in the country over the period. And with a recession beginning in December of 2007, Michigan’s struggling private sector was suddenly hit with a heavier tax burden.
Economic growth (or its absence) matters for government tax collections. This is why the state collected less revenue the year after imposing an 11.5 percent tax hike. Prior to the increase, the income tax delivered $6.4 billion to the state. By the 2010 fiscal year, it collected $5.5 billion from taxpayers.
With the state economy now rebounding, Lansing can afford to let residents keep more of their income. In 2013, the state collected $8.3 billion in individual income taxes. This levy is projected to bring in $8.5 billion during the current fiscal year. Considering that state government survived on $5.5 billion from this source just four years ago — $3 billion less than currently — reducing the individual income tax rate to 3.75 percent is justified.
Based on the incremental revenue impact sheet from the Senate Fiscal Agency, this would mean that the state taxes roughly $1.1 billion less. This is a static analysis that would ignore revenue changes for this or other tax rates now or in the future that would be raise more revenue because of economic growth.
The change would make Michigan more competitive with its neighbors. Our income tax rate advantage over Ohio and Wisconsin would increase and Michigan would improve against Indiana and Illinois.
(While Michigan’s state income tax is currently less than in Illinois, that state doesn’t allow local governments to levy income taxes. Thus, residents of a number of major Michigan cities including Detroit, Grand Rapids and Lansing actually face higher rates than Chicago taxpayers.)
Most importantly, it allows households to spend more of their money how they would like. Taxpayers were asked to take on greater burdens during the recession. It’s time that they have it eased.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
Enjoying CapCon?
Make sure you aren’t missing anything! Sign up for our daily or weekly emails and get the quarterly print edition mailed to your home. All free!
Get CapCon emails! Get CapCon print!
No thanks, I prefer to visit the CapCon website!
More From CapCon