This week's It's Just Politics is all about the politics of gas taxes; there’s a turbo-charged effort this week at the state Capitol to pull together a transportation funding package that will most likely include some kind of increase in the gas tax. Governor Snyder continues to say that he wants at least $1.2 billion dollars more in annual transportation funding. And, even though everyone seems to agree that Michigan’s roads are in dire condition… not everyone can agree on how to pay for the repairs.
It is a complicated state of affairs. Everybody hates the disease. But no one likes the cure: more money for infrastructure. That’s a good reason why the gas tax hasn’t been increased in Michigan since 1996, under then-Governor John Engler.
It’s not as simple as just raising the state gas tax (which is currently 19 cents per gallon). As we know, raising taxes is not typically part of the recipe for reelection, and every House member and state Senator who is not term-limited is up for reelection in November 2014, along with Governor Snyder.
Dealing with this road funding conundrum is complicated by the fact that we pay a lot of different taxes at the pump. There’s the state gas tax and the federal gas tax. We also pay the state sales tax, which goes to schools and local governments. It doesn’t pay for roads. That’s why a lot of people want to either exempt fuel sales from the sales tax or turn a portion of it over to road funding. But that’s a problem because then you’re taking a billion dollars from schools and local governments, both of which are not feeling a lot of love from Lansing lately. So, cut the sales tax from the cost of buying fuel and you’ve suddenly got yourself a new (billion-dollar) problem.
There’s an old saw about taxes and that is that the art of taxation is trying to pluck the chicken with the least amount of squawking. The solution is usually to try and spread the taxes around, grab a little bit here and a little bit there, until you get what you need.
But that solution does not always turn out well. We can remember 2007 and the now infamous tax on services. It was part of Governor Granholm’s plan to deal with a deficit; to extend the sales tax to a few services, which were not then taxed in Michigan (these included new taxes on tanning salons and baby-shoe bronzing – we kid you not). The Legislature actually adopted it, but the blow back was so
fierce that it was quickly repealed and replaced with a business tax. And that tax was so controversial that Rick Snyder made repealing the Michigan Business Tax (MBT) the centerpiece of his campaign for governor.
But, in order to repeal the MBT Snyder had to convince fellow Republicans to swallow some other tax increases to make up the revenue. This included the pension tax and the killing of the homestead deduction. So, now, two years later, Republicans who voted for those tax increases find themselves on the defense. All of this brings us back to the difficulties that come with increasing the gas tax: No one – particularly those planning to run for reelection in 2014 - wants one more tax hike on their voting record.
So, it might be that Governor Snyder needs some help from Democrats – some Democratic votes in the state Legislature – to get what he wants. But, he also wants help from Democrats on the Medicaid expansion. Democrats say none of that help will happen unless they get some concessions from the other party.
And, there’s another problem for lawmakers being asked to make a tough vote on a gas tax increase. An increase in the gas tax is not a long term solution. As vehicles become more and more fuel efficient and more people drive hybrids, electric cars and even natural gas vehicles, that means less money from fuel sales. The Snyder Administration is trying to partially deal with that by raising vehicle registration fees and coming up with a system that’s based on a percentage of the cost of gas and not just a certain number of cents tacked onto every gallon sold. But that’s still temporary as petroleum becomes less and less relied on as a fuel source.
That also means, absent some way of tapping into the cost of electricity, squeezing more revenue from fuel sales. Lawmakers will be cursed every time someone fills their tank. And the controversy will very likely have to be re-visited in a few years... it’s enough to make a politician grateful for term limits.