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Reduce the Gas Tax

How Michigan Can Help Consumers

Dan Knight
June 22, 2000

If you live in the Great Lakes region, you don't just hear about high gas prices. You see them every day. Here in Grand Rapids, MI, the lowest price I've seen in the past few days is $2.049. Last time I tanked up, the day before the most recent increase, I paid $1.979 per gallon.

News reports keep mentioning that the national average price is $1.68 per gallon, but here in the Midwest it's $2.08. That extra 40 cents hurts, especially with summer vacations.

Indiana has already eliminated sales tax on gasoline, and Illinois is considering doing the same thing. But here in Michigan, Governor Engler is concerned such a cut would hurt the schools.

The State of Michigan

For a lot of reasons, and don't even get my social worker wife started on them, Michigan has been running a budget surplus the past few years. The state just keeps accumulating more money - and our booming economy increases the rate of fund accumulation in state coffers.

Michigan has a 6% sales tax, 75% of which is earmarked for schools. Governor Engler correctly notes that reducing or eliminating sales tax on gasoline would reduce funds available to the schools. What he doesn't mention is the extra $100 million in sales tax generated by the current high gas prices. It makes for a good sound bite to say he doesn't want to cut school funding; that's the governor's bottom line.

On the other hand, Michigan has been running a budget surplus for years and shows no sign of reducing the tax rate to change that. We have become profitable, which is not the point of government.

The Proposal

Government exists to promote justice: to protect individuals and society from those who would prey on them. Government itself should not be a predator, although when one looks at the tax bite, one has to wonder about that.

Of the 40¢ more we pay for gas than the rest of the country, 12¢ can be directly attributed to state sales tax. Eliminate that and we're paying under $2.00 a gallon.

OPEC has agreed to increase production, which should eventually lead to prices dropping back to more reasonable levels.

And, of course, schools need to be funded.

So here's the proposal: Eliminate sales tax on gasoline immediately and through the Labor Day weekend. On September 5th, reinstate sales tax on gasoline at a reduced rate of 2% with that entire amount earmarked for the schools. One month later, increase the rate to 4%, again entirely for our schools. And finally, a month after that, resume sales tax on gasoline at the usual rates.

Will this negatively impact the schools? Probably not, since the higher gas prices are already generating more income than expected and since the sales tax would be removed for less than three months and phased in fairly quickly after the summer vacation period.

Will this help consumers (read: voters)? Absolutely. Someone using 25 gallons a week save $3.00 per week and well over $30 during the gas price emergency. They would save even more when vacationing in Michigan.

Will this help the state? Somewhat, since residents would be a bit less likely to drive to Indiana to tank up.

Will this help politicians? Count on it. Which politician wouldn't like to be able to claim they saw our plight and responded by reducing taxes?

Is this a realistic solution? I believe it is.

Will it fly? That depends on our elected officials.

Is anyone in Lansing listening?

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