Far from the penurious tendencies of his conservative counterparts in other states, Michigan Gov. Rick Snyder wants to raise taxes and spend more.
He wants to increase gas taxes to pay for approximately $1.2 billion in statewide road projects. The problem? Gas taxes are a poor revenue source for transportation and infrastructure projects.
In a study released last month, the Tax Foundation, a non-partisan tax research group, enumerated the problems with the current situation, “Nationwide in 2010, state and local governments raised $37 billion in motor fuel taxes and $12 billion in tolls and non-fuel taxes, but spent $155 billion on highways.”
Gas tax revenue does flow to new roads, highways and bridges, but it hardly ever covers the total cost. Data from the Tax Foundation’s study shows 29.9 percent of road projects are covered by gas taxes, tolls and other fees. Only 33.6 percent of overall transportation projects are covered by taxes based on use and fees.
Yet despite its own data, the study still mistakenly insists the “lion’s share of transportation funding should come from user taxes and fees, such as tolls, gasoline taxes and other user-related charges.”
This is a flawed belief Snyder echoed in testimony before the state Senate’s Appropriations Committee last Tuesday when he said, “If you use the roads more, you should pay more. If you use the roads less, you should pay less.”
The principle isn’t the problem, the policy is. Fuel economy standards, which were updated by the Obama administration and the Environmental Protection Agency last year, will continue to erode the tax base. Lower fuel need equals lower fuel consumption, which equals lower tax revenues.
Tesla Motors may be a small electric vehicles company, and General Motors may have cut down production on its electric car the Chevy Volt, but the future doesn’t hold more gas guzzlers. Our future holds cars we plug into electrical sockets and cars that hum like vacuum cleaners. Much like taxes on fireplaces (yes, this did exist), gas taxes will become obsolete.
Republican Gov. Bob McDonnell of Virginia wants to eliminate his state’s gas tax even as he seeks to pay for new road projects.
While Snyder should not completely forgo revenues from gas taxes, he should consider other options. Taxes on fuel and energy consumption should remain intact. But their purpose should be to deter use for positive environmental effects with the ancillary effect of raising revenues—it should not be their primary function.
Option one: temporarily increase the sales tax and earmark the funds for transportation and infrastructure projects.
Option two: levy sales tax on services as well as goods in order to pay for not only transportation projects, but other infrastructure projects as well.
Gas taxes have forever been used to fund road maintenance, but tax collections from gas taxes will only continue to diminish and are not a reliable source for future infrastructure investments.
Snyder’s proposals are fiscally responsible. He correctly envisions the investments needed for the future, but he is not very prescient when deciding on how to pay for them.
