Tax Analysts Blog

Using the Poor for Fixing the Roads

Posted on Jan 14, 2015

The Michigan Legislature passed a bill that would significantly increase the state's earned income tax credit. Some 800,000 Michigan families will see tax relief. I think that is a good thing. But the change won't go into effect unless voters approve a sales tax increase from 6 percent to 7 percent.

The additional sales tax revenue will be dedicated to roads. So poor people don't get tax relief unless everybody agrees to raise the sales tax to pay for roads. If you think about that long enough, your head will begin to hurt.

There is so much wrong here. The increased EITC is a good thing. Anything that provides tax relief, particularly for lower-income folks, is a good thing. But if it's a good thing, why is it dependent on increasing the sales tax for roads and highways? Isn't tax relief for the poor and dispossessed important enough to enact without conditions?

Worse, the idea of using general sales tax revenue for roads is asinine. The roads are among the few public services that can be funded by a user fee. Public finance experts far smarter than I am say user fees should be imposed whenever possible. Roads should be paid for with either a mileage fee or the gas tax -- which is proxy for a user fee. Using the sales tax divorces the use of the service from those paying. It encourages people to use more of the service because other folks are paying some of the costs. That's bad.

But tying the good EITC expansion to a horrible transportation vote is just weird. Or is it? Gov. Rick Snyder (R) and his bipartisan legislative allies worked all this out. The state needs more money for its roads. After all, neither Democrats nor Republicans want construction contractors to be underemployed. The Legislature will never vote for a tax increase because legislators lack the fortitude to take these stands. It's always easier to leave it to the people. Speaking to me off the record, a lawmaker wryly noted that in the greatest democracy the world has ever known, "the people should decide whether to raise taxes."

Tying the EITC to the road funding scheme is brilliant. Democrats can go out and encourage a yes vote with the promise of increased EITC money. The EITC expansion will provide about $300 per family. So poor people come out and vote, and paving and construction companies get their money. Everybody wins.

Read Comments (2)

Emsig BeobachterJan 13, 2015

It's a second-best solution to solve two problems. However, the idea that roads
must be paid for entirely through user fees is fallacious. The existence of
provides public benefits -- otherwise roads would be provided by markets --
which they are at times. If a good or service generates positive externalities
they should be financed by taxes and user fees.

david brunoriJan 14, 2015

Emsig, I agree in part. But economists (and you sound like one) often say that
if you can use a user fee you should. Of all government services, roads are
prime targets for user fees. Besides, even with the user fee -- the burdens are
distributed. Truckers who buy gas pass some of the tax on to their customers.

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