Sales tax increase should be rejected

May 1, 2015

Michigan lawmakers failed last year to pass a bill to adequately fund the state's crumbling roads and decided to forego their duty and slap together a proposed amendment to the state's constitution that voters will decide on May 5. In simple terms, the proposal would authorize the state's sales tax, now at six percent, to be as high as seven percent, and increase the state use tax from six to seven percent, along with a host of other revenue increases to be paid by state residents. For a variety of reasons, we are urging our readers to vote NO on what is known as Proposal 15-1 on the ballot.

As some background on this proposal, Michigan roads, which everyone concedes are in terrible shape, rely for the most part on state general fund monies allocated each year. This ballot proposal would now shift all road funding in the state to the state sales tax and any wholesale taxes on fuel.

At the same time, the proposal would eliminate the sales tax at the pump, which prior to now has been allocated to education and local government revenue sharing. To replace these funds, education and local revenue sharing would be shifted to sales tax revenues, along with the state's Earned Income Tax Credit for lower income residents, which was cut severely when the current administration doled out tax cuts to the business community in the governor's last term. The sales tax at the pump would be replaced with a substantially increased wholesale tax on fuel.

In addition to authorizing a state sales tax as high as seven percent and raising the use tax to seven percent, there are several other revenue increases, including the elimination of the annual decreases in vehicle registration costs tied to vehicle depreciation, increased registration fees for electric and recreational vehicles, continued application of the state sales tax on marine fuel and fuel for industrial vehicles.

Our first objection to this proposal has to do with the historical precedent set in the state of Michigan many decades ago of dictating earmarked funding for special issues through the use of constitutional amendments. 

Rather than deciding how to fund the government based on existing revenues balanced against prioritized actual needs, Michigan is one of the few states in the country that constitutionally binds the legislature on how to spend state revenues, which means if circumstances change in future years, there is nothing lawmakers can do to address a shifting landscape. Further, by adding even more restrictions to the Michigan Constitution, voters are forced to come back to the ballot to make any changes in the future. 

So thanks to the failure of leadership in Lansing to address the roads issue through legislation, voters are now facing a complicated ballot proposal, at a cost of $10 million for the election, which will change the constitution and activate 10 pieces of legislation tie-barred to this ballot issue that have already been approved.

Our second major objection is that we find the ballot language for the proposal to be a bit dishonest. Specifically, the ballot states that it would "eliminate sales and use taxes on gasoline and diesel fuel, allow an increase in the sales tax rate, dedicate revenue for school aid and revise eligible school aid uses." While the elimination of the sales tax on gas at the pump sounds nice, the ballot doesn't acknowledge that the tax on gas at the wholesale level will be increased considerably higher. By most estimates, the wholesale tax increase will be passed on to consumers at a minimum of a 10-cent per gallon increase in the cost of gasoline at today's price of a gallon.

Voters should also realize that while the proposed tax hike would generate about $2 billion per year in additional revenue, there would be little overall impact to money made available for road funds in the early going. In fact, a Michigan House fiscal analysis of the proposal estimates only $367.8 million for distribution to state and local road agencies through the Michigan Transportation Fund in fiscal year 2015-16, with an additional $865.3 million used to pay down the State Trunkline Fund debt. About $763.6 million would be distributed to road agencies in 2016-17, and $1.3 billion in 2017-18. All of this would also free up at least $300 million dollars from current road funding, which would be returned to the state's general fund, not often mentioned by the folks in Lansing.

And then there is our objection to the politics that played into how this proposal was written so that the special interests in the state would get behind this constitutional change because they will all receive a substantial bump in annual funds if passed.

Lastly, we reject the faulty logic by some supporters of this constitutional sales tax increase that this is the best proposal we can expect out of state lawmakers. Voters should reject it and tell state leaders to go back and address the issue of roads through legislation, not a constitutional change.

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