By Tony Wittkowski | Local Government Reporter | The Times Herald
Ed Jefferson has done his arithmetic.
He is a Port Huron resident and a retired automotive industry worker, and he plans to vote against Proposal 1 — but not because of the $1.2 billion in new transportation taxes he would have to help pay.
“I don’t like all the add-ons,” he said. “If you want the money to take care of roads, you take care of the roads. A lot of it will be going somewhere else. I hope it doesn’t pass.”
Proposal 1, which will appear on the May 5 ballot, would:
• Increase the state sales tax from 6 percent to 7 percent.
• Exempt motor fuels from the sales tax.
• Increase the state’s gasoline tax from 19 cents per gallon to about 42 cents.
• Increase registration fees for personal and commercial vehicles.
All those increases would add up to about $2.1 billion in fiscal year 2016 — with the transportation taxes going to roads and almost $800 million in new sales tax revenues going to schools, municipalities, tax relief for low-income families and the state’s general fund.
Those last things are what bothers Jefferson about Proposal 1.
What would it cost me?
The conservative Mackinac Center for Public Policy said Proposal 1’s $2.1 billion equates with $525 more in taxes a year for each of Michigan’s 3.9 million households.
The group estimated that increasing the sales tax by 1 percent would cost a typical Michigan household $389 and the new fuel tax would cost between $88 and $136.
Based on his annual driving distance and his car’s fuel efficiency, Jefferson would pay an additional $67 a year from the fuel tax at current wholesale prices.
Jefferson said he doesn’t worry about the cost. He already pays $15 a month for pothole insurance in the event of a blown tire or a bent wheel from a pothole.
Michigan ranks first for annual individual repair costs to registered drivers at $357 per driver, according to a report from TRIP, a national transportation research group partially funded by the construction industry.
Michigan drivers spend more than $84 per year more in repair costs than the average state. Michigan motorists spend as much as $132 per year more in repair costs than neighboring Indiana.
Port Huron resident Kristina Bailey said her family have had to spend $300 this past year on repairs she blames on bad roads.
Bailey is a stay-at-home mom and says she is in favor of the tax increase.
“I would still want to know where all the money would end up going first, but I would vote yes on Proposal 1,” she said. “If any of it fixes our roads, I’m for it.”
Marysville resident Lucie DeLine says she practically lives out of her car.
Based on her annual driving distance and gas efficiency, it would cost DeLine an extra $72 each year to drive her 2014 Ford Escape.
“I go on long weekend trips with my husband all across Michigan,” DeLine said. “I don’t really know where I stand with Proposal 1.”
Michigan drivers are currently charged an annual vehicle registration fee based on the manufacturer’s list price. They receive a 10 percent reduction discount in the next three years of ownership.
Proposal 1 would eliminate those discounts moving forward.
Buying a 2016 Ford Focus listed at $18,000 would cost $83 to register in year one, $74 in year two and $67 in year three.
If Proposal 1 passes, the Ford Focus owner would pay $83 every year for the life of the vehicle.
Paying $187 in registration fees for his 2014 Lincoln MKZ, Jefferson would pay an additional $58 under Proposal 1 for his registration.
How much a resident will pay in taxes depends on the price of fuel, said Bill Anderson, executive officer to the Southeast Michigan Council of Government.
Anderson said the additional costs can only be considered to be estimates because it’s hard to predict what the retail price of fuel and the inflation rate will do in the future.
If gas is selling at $2.39 per gallon — the projected national average — the day before the tax is implemented, it will cost $2.49 the day after.
As gasoline prices increase, the added tax would decrease because while the 42 cents per gallon fuel tax would remain constant, sales taxes would not increase because they would no longer be levied on motor fuels.
If gas prices at the pump exceed $4.20 per gallon, taxpayers would actually pay lower taxes if Proposal 1 passes compared to present levies.
“Depending on the price of gas, you will be paying somewhere between a nickel and dime more per gallon than you were before,” Anderson said. “If gasoline prices are down around $2 a gallon it will be closer to a dime increase. If prices are closer to $3, then you will be talking only a nickel increase at the pump.”
Proposal 1 would also introduce new surcharges on electric and hybrid vehicles that use less gas and pay fewer fuel taxes. Most electric vehicle owners would be charged $75 a year, while hybrid owners would be billed $25.
If passed, Proposal 1 would put more money in the pockets of low-income families by restoring the earned income tax credit.
According to the Citizens Research Council, a married couple with three children and an annual income of $45,000 would qualify for a $94 credit. If Proposal 1 passes, the family would qualify for a $312 credit.
“The earned-income tax credit was added to Prop 1 to minimize the impact on lower-income families,” Anderson said. “(The EITC) was reduced back in 2011, but the agreement was to return the income tax credit to its original 20 percent.”
Prop 1’s fiscal impact
If the proposal was passed, tax increases would go into effect on Oct. 1 — which is the beginning of the state’s fiscal year.
SEMCOG projections for Proposal 1’s fiscal impact over the next three years fluctuates.
Total revenue is expected to reach $2.1 billion in the 2015-16 fiscal year, but is expected to decline to $1.8 billion in 2016-17. Revenues would then increase to $1.9 billion in 2017-18.
Other state funds will see increases, including the Recreation Improvement Account, the Comprehensive Transportation Fund, the School Aid Fund and the state’s general fund.
The state’s general fund increase of $463.1 million is set for 2016 and decreases to about $171 million in following years.
Michigan’s proposed sales tax rate of 7 percent would be the same as neighboring Indiana and five other states. Only California’s 7.5 percent rate would be higher.
The last sales tax increase was passed in 1994 when it increased from 4 to 6 percent.
Supporters and naysayers
Some opponents of Proposal 1 have expressed concern issue because of its complexity.
An affirmative vote would enact 10 legislative bills into law.
Anderson said the 10 bills were needed because some of the proposed changes have to be implemented using different mechanism and because some horse-trading was needed to garner the bipartisan support to get Proposal 1 on the ballot. Both houses needed a two-thirds vote to even put it in front of voters.
Similar measures for tax increases to fund road repairs were floated before state legislators in 2012, but failed to receive support.
Leon Drolet, chairman of the anti-tax Michigan Taxpayers Alliance, said the proposal is too friendly for road construction companies because it provides a bigger pool of road projects without any substantial reforms.
He also said his group opposes the issue because not all the money would go toward fixing roads.
“It would go toward local governments, schools, expanding the social welfare programs. A lot of voters are skeptical because this is not a straight-up gas proposal. This is a gas tax for a Christmas wish list that the government would like and not just roads.”
Roger Martin, spokesman for the ballot committee called “Safe Roads Yes,” said it is still a good policy solution for a number of reasons including its cost.
“We have not raised our sales tax in 21 years,” he said. “It’s four cents more for a gallon of gas and a penny more for sales tax. Are safer roads in Michigan worth an extra five cents?”
Anderson said Proposal 1 is considered the only plausible option for funding Michigan’s roads.
“It’s no secret Michigan roads have gone from bad to worse,” he said. “It is certainly an imperfect solution. But it’s the best chance we have to fix the roads.”
(Author’s Note: This article was originally published on April 11, 2015)