Opinion | Michigan drivers pay small gas tax now. The free ride is over.

Ronald Fisher is a professor of economics at Michigan State University

Everyone seems to agree that reinvestment in Michigan’s road system is necessary. But a lack of consensus persists about the magnitude of additional revenue required and how such revenue might be generated.

Two fundamental roadblocks limit policy action.  

First, the desire for a “free lunch” often dominates. In a 2015 research survey, 89 percent of participants in Michigan favored more spending on road maintenance. However, when asked how much they were willing to pay, 43 percent responded “nothing” or zero for that additional road investment. Twice as many people want more road spending than are willing to pay for it.

Of course, everyone wants something for nothing, but that is seldom possible.  Therefore, a first condition to solve the road-funding dilemma is convincing taxpayers that new resources must be raised.  

Second, taxpayers greatly overestimate the amount they pay in fuel taxes. In the survey, half of Michigan respondents believed that the average driver in Michigan paid $50 per month or more in gas taxes. The actual amount was about $10. The major reason for this misperception is that taxpayers believed the state gas tax rate was much higher than it really was – many overestimating it by a factor of three. If taxpayers incorrectly think that they already are paying high gasoline taxes, then it is not surprising that many oppose raising additional revenue.

What to do?

Proposals to generate additional revenue for highway investment are likely to have more support and policy success if accompanied by an education effort concerning the actual amount of highway spending and magnitude of gasoline taxes. In addition, proposals for change should be translated into monthly payments for the state’s typical driver. It is self-defeating for officials to assume that taxpayers have accurate information.

If taxpayers believe they are paying $50 per month in state gasoline tax when the actual amount is $10 or $20, it is not surprising they oppose additional revenues and investment. Rather than seeking a “free lunch,” it seems more likely that taxpayers believe incorrectly they are already paying too much for lunch. Since 2000, Michigan ranks last among the states for highway capital spending as measured by the Census Bureau. That spending includes construction, replacement and major alternations.

Michigan spent an average of $155 per person per year compared to a national average of $300. Even more telling, the average was $343 for the other Great Lakes states. To bring highway capital investment up to the national average requires at least $1.5 billion more every year going forward. It seems clear more resources are required to maintain the road structure that past taxpayers built and paid for.

At the current 26.3 cents per gallon, the typical Michigan driver pays about $12 a month in state gasoline tax. Seems clear that the “bill” for road use is quite a bit less than what many pay monthly for telephone, television, or electric service.  

The calculation is straightforward. A typical driver purchases 500 to 600 gallons of gasoline yearly, so each 10 cent gas tax increase would cost a typical driver $4 to $5 per month. Similarly, a mileage fee of a half-cent per mile would cost about the same. Many taxpayers might be surprised how small these amounts are. The typical price that drivers pay for road use – or the proposed additional payment for improved roads – is equivalent to a few cups of coffee each month.

 

The survey results do suggest a path for policy action. More than half of Michigan citizens were willing to pay something more for road maintenance, with the median amount about $10 per month. An increase in the gasoline tax by 20 cents or a mileage fee of 1 cent per mile would cost the average driver $10 per month, and each would generate about an additional $1 billion annually for road funding.  Doing both at the same time would generate about $2 billion, close to what the governor suggests is the goal.

It is time to provide clear and accurate information to taxpayers so the state can get around the roadblocks and get moving toward solving this persistent problem.

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Comments

duane
Thu, 04/25/2019 - 11:20pm

Mr. Fisher is just another one writing about more money, but having no interest in what we will get for that money.
I will [we will] pay more, if only we could trust the government to spent it wisely and we would get added value for the money.
Mr. Fisher doesn't seem to grasp the concept of value, he seems to only see money. I guess economics is being taught differently at MSU [it uses the 'millennial' logic of how much will the payments be per month] nothing about the roads [use and for how long].

Kevin Grand
Fri, 04/26/2019 - 6:59am

Prof. Fisher does a great job of promoting his position...when he IGNORES half of the facts!

I failed to see him mention anything about the sales tax collected at the pump that doesn't go towards roads.

I failed to see anything about the money taken from the transportation budget and earmarked solely for non-road building items like landscaping and mass transit.

I fail to see anything regarding addressing the shoddy work Lansing signs off on with recent road projects on I-75 & I-696 (less than 2 years old) now self-destructing.

And I failed to see him mention anything about Gov. Whitmer's latest plan diverting 40% of her projected revenue towards backfilling other areas in the state budget.

https://www.michigancapitolconfidential.com/40-percent-of-whitmers-2020-...

Michigan Motorists are a little more informed regarding HOW Lansing works than Prof. Fisher realizes.

Cadence Morton
Fri, 04/26/2019 - 8:44am

No more regressive taxes! Corporations and the 1% have gotten rich off our infrastructure. Make them pay for the repairs.

Katelizt
Thu, 05/02/2019 - 10:18am

Agree.

Judy O’Betts
Fri, 04/26/2019 - 8:53am

Interesting. I’m hoping that both parties can come together, unlike our federal government, and find a compromising solution. There may be other funds from which to “steal” a little bit to appease those who are worried about the road tax. While living in Wisconsin for 34 years, we camped in the UP often and visited family in the Grand Rapids and Down River area of Detroit. The roads around Riverview and other downriver communities are awful! US 2 between Gladstone and Rapid River is like a washboard. If we want tourists to come to Pure Michigan, we need to make our roads more welcoming, too.

Arjay
Fri, 04/26/2019 - 9:02am

The problem is not so much what we pay, but the constant raiding of funds that are supposed to go to highway repair that go to other political dreams, like bike paths, or public transportation, or the general fund. Just like Social Security, that is supposed to be invested to be there when we need it, but it is neither invested nor there when we need it. Go back 15 years and recapture all the funds that were diverted to "other". I'll bet we would have the best roads in the nation.

chuck k
Fri, 04/26/2019 - 9:59am

This commentary should mention that there are 42 states that have lower fuel taxes than Michigan. My guess is that Michigan taxpayers have been cheated by road builders and we are not receiving the quality deserved. I am not a college professor, however I think the state could cut other overspending 5% and pay for great roads.

Jim
Fri, 04/26/2019 - 10:01am

Thanks for the detail Team Bridge. I'm a data geek, and find the graph of per-capita highway spending interesting. How about a deep-dive into how "highway" is defined in this case, as well as additional graphs detailing miles per state, and population per state so better comparative definition can be gleaned?

John
Fri, 04/26/2019 - 10:19am

Trust is the main tax payer concern.

Dave Renwick
Fri, 04/26/2019 - 10:38am

It appears the writer is omitting the Federal Tax when making his calculations, and doesn't take into consideration WHERE these taxes actually go, as it appears that well over HALF what we pay goes to services OTHER THAN ROADS! I do NOT want or expect any service for free, but would appreciate my government actually spending my taxes on what they are supposedly collect FOR. Perhaps a fuller and less biased explanation of our current gas taxes can be found at: https://www.michigan.gov/documents/mdot/RealityCheckMyth6_473561_7.pdf

Iltefat
Sun, 04/28/2019 - 8:06am

Thanks for the informative comment. It seems like the state sales tax is the issue.It helps fund the schools. We are not doing well there either.I learned a lot from the link you sent. I am willing to pay more on my state income tax and on a gas tax.Maybe that might even out the costs across our population.I pay a lot more in federal taxes and I have no idea where that goes.

Bernadette
Fri, 04/26/2019 - 10:44am

Thank you Professor Fisher for your thoughtful analysis. I too believe in education about issues but find a real resistance in Michigan to such education. There are many on this site who think they know it all, boil everything down to NO NEW TAXES, and deny the reality of the world we live in. I have found one on one conversations with reasonable and rational citizens to work best.

Kris
Fri, 04/26/2019 - 1:33pm

I wouldn't mind paying a little more but she said she wouldn't raise the gas tax when she was campaigning and look where we are. Every time they want to raise taxes they say it is for the kids or for the roads. Well schools are failing and so are the roads. Where is the money going?

64Wing
Fri, 04/26/2019 - 12:49pm

It is confidence-inspiring to see so many of you keeping your eyes on the proverbial ball with respect to the obvious holes in this article, which I respectfully believe to have been written after only a cursory review of a few quick data sets between Mr. Fisher's classes. The comments here are correct when some of you mention that a significant portion of existing fuel tax revenue is never apportioned to actual road repairs. Nearly half of it simply gets slushed: (https://www.michigancapitolconfidential.com/40-percent-of-whitmers-2020-...). So, too, it is imperative to point out that taxpayer trust/confidence is very much an issue. The author comments that poll respondents were unwilling to pay more for an increase in road work. Summarizing that this means they want a "free lunch" is not only a dreadfully plebeian analysis, but also seems to ask us to take at face value that 100% of fuel tax revenues are being allocated to the repair activities represented in the query. See link above...again.
One of the big things that bothers me about every article I read regarding this gas tax debacle is that proponents attempt to make their case by presenting estimates of the individual cost to Michigan drivers. Cheerleaders of the tax (deliberately, I believe) only postulate a single estimation scenario, that is, for the people they're really looking at: someone right inside of an urban area. According to Mr. Fisher's article, and with some base arithmetic, we can derive that the "average" (with no supporting data) monthly mileage of a Michigan driver is almost exactly 1,232 miles, or an annual mileage of just about 14,783 miles. But what about rural drivers? I average between 2,000-2,500 miles each month. Given my vehicle's fuel economy average of 27mpg, and if gas hovers around $2.80 (like it is where I live) that calculates out to greater than $24/mo in state fuel tax alone, and that doesn't include sales tax and the federal fuel tax.
According to Michigan.gov,(https://www.michigan.gov/documents/mdot/RealityCheckMyth6_473561_7.pdf) schools receive about 50% of these taxes. Roads themselves supposedly are allocated about 43%. Lastly, a bit more than 6% goes to "transit."
Now, according to somewhat recent data (within the decade) from the Bureau of Transportation Statistics there are by now more than 7 million licensed drivers in Michigan (https://www.bts.gov/content/licensed-drivers). About 4.3 million of those were commuting to work (https://www.bts.gov/content/commuting-work) . There are 122,141 miles of public roads in Michigan, the majority of which are county roads. In fact, county road miles are approximately triple the number of road miles that are "municipal" or "state." (https://www.bts.gov/content/public-road-length-miles-ownership).
Based on my above statements regarding rural drivers and the mileage they average, I would make the very real argument that rural drivers will not only be hit the hardest by this proposed tax, be they would also be the very last to benefit from the supposed newly-allocated revenue under Gov. Whitmer's plan. Why is this? Simple: the most highly-trafficked roads will get attention first; i.e. urban roads. In this way, Gov. Whitmer is pleasing her constituents while managing to simultaneously punish rural folks for voting against her and for the President.
Ultimately, it is my personal feeling that Gov. Whitmer is really just attempting to grow government, punish conservatives, and take out an insurance policy on urban Michigan votes for 2020 by very unevenly and unfairly catering to them, not just through the guise of road funding, but by all the other little programs likely to pop up from that 40% slush being diverted from the now-proclaimed oh-so-critical tax revenue.
So, Gretchen, fix the damn roads we must. But it seems many of us prefer to see you and your cohorts fix the allocation schedule before we're willing to pony-up any more coin.

Dave Renwick
Fri, 04/26/2019 - 7:37pm

64Wing, your observations are better written and researched than the article itself. Kudos!

Jarrett Skorup
Fri, 04/26/2019 - 1:00pm

The professor says "the actual amount" people pay in monthly gas taxes is "about $10." He gets that by including part of the gas taxes citizens pay - the 26.3 cents per gallon fuel tax. (Even here, I think he is incorrect - the Bureau of Transportation Statistics says the typical car uses 658 gallons of gas per year: https://www.bts.gov/content/motor-vehicle-fuel-consumption-and-travel - that would be $14.40 per month in taxes).

He is not including the sales tax on gasoline or the 18.4 cents in federal taxes. I realize the survey is about "state taxes," but you can't really expect people to differentiate which taxes go where when they are estimating how much they are paying. Plus, they should expect all that to go to roads.

Including that, at $3 per gallon gas, people pay $34.80 per month in fuel taxes right now. So the guess of those regular dummies ($50) was closer than what this economics professor came up with (about $10).

ExPoliticalHack
Fri, 04/26/2019 - 4:19pm

Ask the Professor if the simply laws of supply and demand apply to road building? What do you think is going to happen to the cost of repairing roads if we dump a bunch of money at it tomorrow since we only have so much road building capacity in Michigan? You guessed it: The cost will go up. ALSO if the road builders KNOW there is more money available to fix the roads what do you think the price of fixing a mile of road? You guessed it: The price will go up.

Frank
Fri, 04/26/2019 - 4:34pm

I conservatively put myself at 1 fill up per week. That is 2 vehicles a total of 31 gallons.
Multiplied by 52 weeks in the year that comes to about 1600 gallons a year. Typical egghead on campus has no idea what happens in the real world.

Bob A
Fri, 04/26/2019 - 5:45pm

Of course we need more money for roads! BUT the Snyder years saw massive tax cuts for business, and tax increases for residents. A lot of people are still smarting from that. I think that if we make business give back its $ 1+ billion tax cut from 2011, a lot of people could be persuaded to pay higher gas taxes.

Katelizt
Thu, 05/02/2019 - 10:30am

Agree.

James Roberts
Fri, 04/26/2019 - 7:05pm

Professor Fisher lays out the issues reasonably clearly. Now if only our new leader, Governor Whitmer and her cronies were willing to break it down clearly perhaps we could get some traction on this. I would guess that distrust is the big issue on the 75% disapproval for any new gas tax and it is her job to educate us poor taxpayers why we should be willing to say yes, rather than the usual approach of telling us to accept it, trust them as they know what's good for us.

RF
Sat, 04/27/2019 - 11:26am

Thanks to all the respondents who generally make my point! But let's clarify some additional misunderstanding.
About the sales tax - there is no reason the sales tax on gasoline purchases should go toward road funding. Does the sales tax on TV purchases go toward funding entertainment? The sales tax on restaurant meals toward agriculture? The sales tax collected on purchases of many different goods is allocated to other public services, including schools. So, diverting the sales tax on gasoline purchases toward roads would hurt schools -- no free lunch.
Yes, a very small amount of gas tax revenue is allocated for public transportation, mostly buses. But that benefits the roads - fewer cars means less wear & tear and less congestion (as well as less pollution).
Yes, the revenue from the past (Snyder) increase in car registration fees and gas tax for the first two years went to reducing state debt. But much of that debt was borrowing in the past to repair infrastructure. So we had to pay for those repairs (borrowing is not free money - it must be repaid).
The Michigan gas tax rate is about in the middle of all the states - some higher & some lower. But remember, many other states also use tolls to fund roads, which MI does not. But maybe we should! (Anyone drive in IL, IN, OH, PA, NY, MA, FL, CO, TX lately?)
Simple arithmetic - 13,000 miles per year at 23 MPG = 565 gals of gas. That is $4.70 per month for each 10 cents of gas tax. Yes, if someone drives more they would pay more. But shouldn't they pay more if they are using the roads more? No free lunch.
Thanks for reading.

duane
Tue, 04/30/2019 - 12:33am

Still nothing about value, how the money is spent can have a significant impact on how much is need to deliver the desired results. Cost and value aren't always properly measured by dollars, sloppy project management can double or triple the dollars spent and deliver roads that need repairs as soon as they are open so only focusing on how to get more of other people's money doesn't necessarily fix the problem, better to focus on the problem before worrying about the money.

Gerald Barber
Sun, 04/28/2019 - 4:50am

We in Michigan have been savaged by road taxes , we went from 4 cent sales tax to 6 , we voted in favor of lottery for road tax we voted casinos for road tax we had our registration fees raised for roads! There’s how many millions going to roads that never make it there ! You call it road tax but the roads see less than half so why should Michigan citizens pay more for something that’s been paid for but not used where supposed to be used? I’m on a fixed income my pension is taxed! My house is taxed my cars are taxed I’m tax to death yet you want more ! Maybe I should consider leaving this state I lived in for 50 years! I’m sure I could find a cheaper state!

john harper
Mon, 04/29/2019 - 7:36am

The author neglects, on purpose I am sure, to compare the percentage of road taxes collected actually is expended on roads, rather than being spread over other items in the state budget. That may be hugely different between states and would make the data he presents essentially useless. It is likely not so much an objection to spending a few more bucks/ month that voters object to but rather these half truths that amount to nothing more than poorly disguised lies. We see deception and will not tolerate it. Be honest and paint the complete picture and we will get somewhere with this.

Elsie Anne
Thu, 05/02/2019 - 12:06am

The author writes: "The calculation is straightforward. A typical driver purchases 500 to 600 gallons of gasoline yearly, so each 10 cent gas tax increase would cost a typical driver $4 to $5 per month."
I live in a rural area, so my mileage is on the higher side of this estimate. Thus, Governor Whitmer's proposed 45 cent gas tax increase would amount to at least $22.50 per month, in addition to the $12/month that we are already paying. And that's for one driver, one car. We are a married couple with two cars. We don't put as many miles on the second car as we do the first, but it's still going to bring us well past that imaginary $50/month gas tax that Michigan residents think they are paying. And, as others have mentioned, that's only the state gas tax, not the state sales tax or the Federal tax.
I support the need to repair the roads, and plead guilty to using them. I will pay my taxes as necessary. However, I am frustrated that so much of the bill falls on ordinary citizens just trying to get to work or the grocery store, while industries who benefit so heavily from the roads continue to get tax breaks. A gas tax is regressive, and I'd like to see the tax burden distributed a bit more fairly.

Katelizt
Thu, 05/02/2019 - 10:28am

I have no problem paying taxes to pay for roads, schools, etc. However... why is it that when I cross the border to Ohio (which pays significantly more per capita for its roads), I am not only driving on better roads, but can get cheaper gas??? Where is THAT money going in MI? The other thing that is so frustrating is "who's responsible for what" - for example, we are off 13 Mile, which is a shock-busting mess between Southfield & Evergreen, a main road to the local high school - apparently Beverly Hills is responsible for the west-bound half and Southfield for the east-bound half. I'm sure there are similar situations all over the state. How does gas tax money (or just tax dollars for roads in general) filter down to communities and then who holds those communities responsible for spending that money on roads?

Don Sepanski
Wed, 05/15/2019 - 7:06pm

No new road taxes!
It's a spending problem, not a revenue problem.
All gasoline taxes need to be spent on roads. And roads only.
It's an absolute lie to say we need new taxes for roads, when road tax money is spent on other things.
Stop putting road tax money into the general fund, to be spent on things other than roads.
Stop spending road money on "Transportation". No trains, buses, bikes, walking paths, curbs and sidewalks, autonomous vehicles, EV charging stations, or any other "transportation".
Fix the roads with road money. Spend on other things with other money.

Jennifer
Wed, 05/22/2019 - 9:11am

I agree that roads should be fixed. Where I disagree is on the funding. Snyder put additional gas taxes on us if I'm not mistaken. He raised fees at SOS. Where is that money? Coincincidently no one knows. Previous governors did nothing to fix the roads either so we cannot just blame one person. I believe the Michigan government needs a massive spending overhaul. The money is there. Several months back, I read an article about how much MI pays outside sources to do jobs MDOT is more than capable of doing. Don't quote me on numbers (this was several months ago), but I recall the number being 2/3 higher than if we had paid MDOT to do it. MI government wants us to pay .45 extra a gallon. Do a spending overhaul. Fix how much auto insurance costs taxpayers. Then come back to us with a reasonable number. Michiganders aren't happy. Hopefully just more than a few legislators are listening to us.