What goes into the cost of a gallon of gas in Michigan?

May 22, 2014

These days are long gone. A gas pump in 1974.
These days are long gone. A gas pump in 1974.
Credit USEPA

The roads are crumbling and people want them fixed.

But just how do we pay for what some are calling a $2 billion a year problem?

Right now, state lawmakers are considering raising revenue through higher taxes on gas, and that's raised a lot of debate around what we pay at the pump already.

The average gallon of gas in Michigan stands at $3.85 today. In Louisiana, by contrast, the average gallon of gas is $3.38.

Why the difference?

There's a lot that goes into making up the price. The majority of the per gallon cost comes from the wholesale costs.

But states also affect the price through taxes and fees. And drivers in Michigan pay some of the highest taxes on a gallon of gas.

  • In Michigan, we pay around 60 cents per gallon in state and federal taxes and fees.
  • In Louisiana, they pay around 38 cents per gallon.

Mark Griffin of the Michigan Petroleum Association says Michigan consistently hovers around the 5th-7th highest in per-gallon gas taxes.

Here's a look at how it breaks down across the country, via the American Petroleum Institute:

Average total gas taxes and fees around the U.S.
Average total gas taxes and fees around the U.S.
Credit American Petroleum Institute

Michigan's fuel taxes are higher mostly because the state charges sales tax on top of its motor fuel tax.

It's one of only eight states to do so.

This chart shows what makes up the price of a gallon of gas in Michigan, when it retailed at $3.81 per gallon.

As you can guess, the proposal to fix Michigan's roads by raising fuel taxes has its critics. The Detroit Free Press quotes a Facebook post by Americans for Prosperity's Scott Hagerstrom:

“Why are legislators promoting and passing plans that will give us the highest tax on gasoline? Elected officials aren't being held accountable for the dollars they currently take from Michigan drivers.”

But advocates for raising the tax say people don't understand a key fact: state sales taxes paid at the pump don't go to the roads.

Here's what one road construction advocate told MLive's Jonathan Oosting last year:

"It's the biggest public policy problem we have," according to Lance T. Binoniemi of the Michigan Infrastructure and Transportation Association. "The general public does not understand that the 6 percent tax does not go to funding roads and bridges."

State road funding in Michigan comes from the 19-cents-per-gallon state motor fuel tax.

By contrast, our neighbor to the south, Ohio, charges a 28-cents-per-gallon state motor fuel tax, with no other state taxes or fees levied on a gallon of gas.

According to Crain's Detroit Business, the proposal being put forward by Michigan lawmakers, as it stands now, would raise fuel taxes for road funding this way:

The tax would start at 9.5 percent, effectively increasing the state's 19-cents-a-gallon gasoline tax by 10 cents and doubling the 15-cent diesel tax assuming the statewide average wholesale price of gas is $3. The gas tax would rise to 11.5 percent (around 34 cents) in 2016 if prices stay intact, 13.5 percent (40 cents) in 2017 and 15.5 percent (46 cents) in 2018.

The State Senate is expected to vote on the measure next week.