Taxes on gasoline now contribute directly to road maintenance in Michigan rather than to the state government, thanks to a state law enacted Jan. 1.
The law removed the 6% sales tax on fuel and increased the motor fuel tax from 31.0 to 52.4 cents per gallon. Whereas the prior sales tax on fuel funded various state programs, 98% of the now-increased motor fuel tax goes to the Michigan Transportation Fund.
The new system taxes two cents more when gas is $3 per gallon, but it taxes less than the old system when gas costs $3.33 or more. Unlike the sales tax, which increased with the price of gas, the motor fuel tax is a static number.
As of Feb. 18, a gallon of gas at the Marathon gas station on 185 W. Carleton Road costs $2.60, 5 cents more than it would have last year. Under the old system, 65 cents would have contributed to taxes, with 15.6 cents in sales tax, 31.0 cents in motor fuel tax, and 18.4 cents in federal fuel tax. Now, 70.8 cents go to taxes, with 52.4 cents in motor fuel tax and 18.4 cents in federal fuel tax.
State Sen. Jonathan Lindsey, a Republican who represents part of Hillsdale County, said the change reflects an effort to allocate more funding to Michigan’s roads.
“We’ve been stuck in a cycle of deferred maintenance and not being able to keep the roads where they need to be,” Lindsey said. “There’s a need in Michigan to play catch-up and get the infrastructure back to where it needs to be. It was never meant to be a tax increase. There are times we’re going to pay a couple cents more per gallon — even that I wouldn’t have liked to see. I would have liked to see us going the other direction and figuring out how to more efficiently spend the people’s money.”
The tax change was part of a funding deal estimated to generate more than $1.8 billion for roads through a 24% wholesale tax on marijuana and the increased motor fuel tax.
Ward 3 City Councilman and Professor of Political Economy Gary Wolfram said the state needed revenue dedicated to funding the roads because roads are not prioritized in a general state budget.
“One of the reasons that the roads have fallen into disrepair is because that’s something you can easily postpone in your budget, whereas a number of other things, like your programs, you can’t just say, ‘We’re not going to pay for that program this year,’” Wolfram said.
James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, said taxes are higher per gallon of gas because gas prices have dropped since legislators estimated the appropriate amount of motor fuel tax.
“The legislators set those rates on typical fuel prices over the past couple of years,” Hohman said. “Fuel prices are lower than they have been, so the motor fuel excise tax is going to raise more revenue than taxpayers are going to save from not having to pay the sales taxes.”
Hohman said the new tax system demonstrates that people who use the roads also have to fund them.
“We should, over the long term, try to treat our transportation services like utilities,” Hohman said. “Utilities are user-fee-based systems where, if you’re using electricity, you pay electricity rates. Fuel taxes and vehicle registration taxes are tied to usage. You’re mostly not paying fuel taxes unless you’re filling up your vehicle and using the roads in the state of Michigan.”
Wolfram agreed that it’s good for the amount people use the road to correlate with the amount of taxes they pay to fund the road. He said if the motor fuel tax hadn’t increased, another tax would have funded the roads.
“It just depends on what source of revenue you’re using to fund your roads,” Wolfram said. “If I’m using a corporate income tax and taking that money to fund the roads, then I’ll have less motor fuel tax. It makes sense to relate the tax directly to the usage.”
The registration fee for electric vehicles also increased as part of the bill by $63 to ensure electric vehicle owners pay their share of taxes on the roads, since they do not purchase motor fuel.
Wolfram said a system that tracked each car’s road use would be most effective.
“You could conceive of toll roads being used more than just on the freeways,” Wolfram said. “If the technology were to change enough, you could have toll roads on all the roads.”
According to the Citizens Research Council of Michigan, a pavement quality assessment ranked Michigan 40th in the nation for road quality, and 10th in a group of 11 peer states.
Legislators have been attempting to improve Michigan’s roads for the past 15 years, according to Hohman, and the tax change offers a viable solution.
“This latest round is probably going to get us to a level where administrators are fixing roads faster than they fall apart, which sets us into a process of continual improvements over the long term, and that’s a good thing,” Hohman said. “It gets lawmakers to accomplish their basic responsibility to provide a service.”
