The Michigan House Has Approved a Six-month Moratorium on the State’s 27-cent-per-gallon Gas Tax.

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LANCASTER — Michigan House members voted Wednesday to suspend the state’s 27-cent-per-gallon gasoline tax, challenging Democratic Gov. Gretchen Whitmer to join them in mitigating the impact of rising gasoline costs.

The legislation, which passed 63-39, came after Whitmer and five other Democratic governors requested a pause in the federal 18-cent gas tax on Tuesday, citing rising fuel prices caused by inflation and oil sanctions imposed on Russia in response to its invasion of Ukraine.

The Michigan House bill now proceeds to the Senate, where it is likely to be passed next week.

State Senate Democratic Leader Jim Ananich has broached the idea of suspending the state’s 6% gasoline sales tax, which would result in a savings of around 24 cents per $4 gallon of gas. Republicans have expressed opposition to such approach.House Speaker Jason Wentworth and Senate Majority Leader Mike Shirkey revealed the 27-cent tax suspension on Wednesday morning in a joint statement, a day after Whitmer signed a letter urging the federal government to suspend the federal gas tax, which is now 18 cents per gallon.

“Why on earth would we write a letter to Congress requesting lower gasoline prices someday when we can just stand up and fix it ourselves?” Wentworth, R-Farwell, said in a statement. “Michigan has billions of dollars in available excess revenue and one of the highest state fuel taxes in the country. The solution is straightforward in this case.”The planned suspension of the state gas tax from April 1 to September 30 is estimated to result in a revenue loss of around $725 million, which House leadership has said will be compensated for the general fund surplus. Nine Democratic members of the House voted in favour of the proposal.

 

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“This is a grave circumstance that necessitates more than letter writing and the altruistic act of asking someone else to foot the tab,” Shirkey stated in the statement. “Six in ten Michigan residents live paycheck to paycheck, struggling to feed their families, heat their houses, and fill their cars with enough gas to drive to work. Republicans in the Legislature will vote again to assist residents retain more of their earnings, but we need the governor to take the initiative rather than abdicating her obligations to Washington.”

Whitmer’s office stated Wednesday that suspending the federal gas tax was the “greatest method to reduce gasoline prices without jeopardising our capacity to fix the dang roads.” Bobby Leddy, the governor’s spokesman, said the Legislature could assist Michigan people experiencing pain at the pump by passing a plan offered by the governor that would exclude certain retirement plans and expand tax credits for low-income individuals.

“Gov. Whitmer is constantly looking for ways to reduce costs and save motorists money,” Leddy added.

According to AAA estimates, the average price of gasoline in Michigan was $4.25 on Wednesday. A month ago, the average price was $3.37. Increased inflation rates and sanctions in response to Russia’s invasion of Ukraine are regarded to be to blame for the surge.According to the Washington, D.C.-based nonprofit Tax Foundation, Michigan’s total gas tax — the 27-cent excise tax plus the 6% sales tax — was the 11th highest in the US in 2021, behind states such as California, Hawaii, Illinois, and Nevada.

The House bill enacted Wednesday stipulates that the savings from the gas tax be passed on “to the end user,” but a House Fiscal Agency report cautioned that “in practise, it is unknown how this provision would be identified or implemented.”

“Given the historical volatility of motor fuel prices in response to external events, there is no way to determine whether the customer is receiving the entire benefit or only a portion of it,” the agency stated.

 

Impact on revenue

The 27-cent excise tax on gasoline collected by Michigan goes into the state’s transportation fund, which is distributed among state trunk lines, cities and municipalities, and county road commissions.

The Legislature intends to offset the expected $725 million shortfall created by the tax decrease with funds from the state’s roughly $4 billion general fund surplus.

However, some House Democrats expressed scepticism about the GOP’s claims, noting that the backfill plan was omitted from the law approving the tax reduction. Republicans have stated that the funds would be included in the September annual budget.

“This is a piece of candy,” Rep. Lori Stone, D-Warren, said. “It will taste quite sweet, but it will dissolve quickly. I cannot in good conscience return to my town of Warren, Michigan, and explain why funding for Mound Road, 8 Mile Road, and (Interstate) 696 is unavailable.”

Rep. Steve Johnson, a Republican from Wayland who sponsored the bill, said the state has enough money to cover the cost of the gas tax drop, which he claimed will be crucial for the state’s poorest residents.

 

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“You have a choice,” Johnson stated. “Either you stand up for Michigan’s working class and provide some relief at the pump, or you better pray that (House Speaker) Nancy Pelosi comes through for us.”

It is unclear how using some of the excess to replace lost gas tax revenue will influence Republican intentions to use the remainder of the surplus to fund a $2.5 billion tax cut package pending the governor’s signature or veto.

Shirkey and Wentworth emphasised that the governor has yet to approve or veto the $2.5 billion tax cut package, which includes higher senior deductions, a personal income tax decrease, and a $500 child tax credit. Whitmer, on the other hand, has called the proposed tax reduction “unsustainable” and emphasised her plan to eliminate taxes on certain retirement income and enhance the Earned Income Tax Credit.

“Rejecting our income tax cut and blaming Washington, D.C., here accomplishes nothing,” Wentworth said in a statement Wednesday. “The governor has repeatedly stated her desire to decrease taxes, but I’m not convinced she is genuinely willing to do it. I suppose we’ll find out soon enough.”

 

Democrats propose a strategy

Senate Minority Leader Ananich, D-Flint, said he hopes to work with legislative leaders on an alternate plan that will bring comparable relief.

Ananich recommended suspending the state’s 6% sales tax on gasoline, which would amount to around 24 cents per gallon if gas were $4 per gallon — a total savings he said would be comparable to the Republican legislative leaders’ planned excise tax freeze.

Michigan citizens would save an estimated 42 cents per gallon under Ananich’s plan if the federal gas tax were also eliminated.

“It is not a question of whether or not we need to provide help for people. It’s just a matter of how we do it and getting it done sooner rather than later,” he explained.

Ananich contended that schools and other recipients of sales tax money may be held blameless, citing the higher-than-expected revenue generated by the gasoline sales tax. If the amount collected thus far falls short, he said, Michigan’s general fund surplus may make up the difference.

“We have a sizable surplus in our general fund to ensure that roads and schools are not damaged,” Ananich stated.

According to a 2014 House Fiscal Agency estimate, around 73% of Michigan sales tax money goes to the School Aid Fund, 10% to local revenue sharing, and some to a transportation fund.

House Appropriations Chairman Thomas Albert, R-Lowell, stated Wednesday that he would need to examine Ananich’s proposal more closely.

“I’m open to discussing any form of tax relief if we can get it to the governor’s desk,” Albert added.

 

Independence from fossil fuels

As part of the gas tax cut, the state House and Senate enacted resolutions encouraging measures that will assist the United States in becoming energy independent, including the “continued safe operation of the Line 5 oil pipeline,” a Canadian-based pipeline.

The resolution passed the Senate on a party-line vote of 22-14, but had bipartisan support in the House, where eight Democrats joined Republicans to vote 62-40 in favour of the resolution.

Democratic Senate opponents emphasised the importance of transitioning away from fossil fuels to ensure energy independence.

“This addiction to fossil fuels is wreaking havoc on future generations; it is also wreaking havoc on today’s consumers,” said Sen. Jeff Irwin, D-Ann Arbor. “Like an addict who isn’t ready for treatment, this resolution is looking for a quick fix to alleviate the sickness.”

Sen. Ed McBroom, R-Vulcan, responded that the impact of high gas costs on consumers is already present and growing, whereas the impact of fossil fuels on climate change may take decades to fully manifest.

“This is an excellent statement about the current moment, and it avoids profiting on the world’s crisis to do it,” McBroom remarked. “It’s acknowledging an already-existing reality.”

 

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Whitmer called for the closure of Enbridge’s 68-year-old Line 5 portion over the Straits of Mackinac in November 2020, but the governor has taken no action to halt the planned construction of a tunnel to accommodate a new segment of Line 5. She directed her departments to proceed normally with permission applications for the tunnel project, notwithstanding her request for the pipeline’s closure.

The pipeline has not yet been shut down because Enbridge and the state are still embroiled in legal disputes over the court-ordered closure.

The $500 million tunnel is awaiting final state clearance from the Michigan Public Service Commission before construction can begin, as well as permitting approval from the US Army Corps of Engineers.

About 540,000 barrels of light crude oil and natural gas liquid are transported on Line 5. Studies on the impact of a Line 5 shutdown are varied, with industry-sponsored analyses projecting significant rises in gas prices and opposition-sponsored analyses indicating a smaller impact on wallets due to alternative transportation options such as other pipelines, rail, and trucking.

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