Politicians Misrepresent Road Funding Bills to Promote Tax Hike
Slower spending growth is not a 'cut'
In Lansing, reducing the rate of a projected spending increase is considered a “budget cut.” It is no surprise, then, that when the two chambers of the Michigan Legislature each passed a plan to allocate a slice of future revenue to the road repair budget, some people cried foul. Under the political logic of the state capitol, those plans by definition cut spending for other areas in the state budget — even though the only question for those other areas is likely not “Will they have less money than today,” but rather “How much will they grow?”
Gov. Rick Snyder is one of those criticizing, stating, “You should also say where you’re going to cut because I think that’s going to be one of the challenge points.”
He is not alone. Senate Minority Leader Jim Ananich (D-Flint) said of the Senate plan, “You can’t break the rest of the system to pave the roads.”
This characterization sounds odd to taxpayers because even with a shift, the state would gather the same amount of money. The proposals would simply allocate some of the growth of income tax revenue to a different area of the budget. Overall spending levels would not be disturbed by the earmarking.
The talk of “cuts” misrepresents how the state budget works and invariably moves the conversation toward higher taxes. It also presupposes a static state economy in which state government’s revenues do not grow. In reality, that growth should be more than enough to cover the proposed earmarks. To claim otherwise is to assume that the economic growth Michigan has enjoyed since 2010 will soon come to an end.
But in fact, the state is now collecting more income tax revenue year after year. This levy is expected to bring in $1.2 billion more in fiscal year 2017 than last year. The increase is more than either the House-passed or Senate-passed plan recommends for diverting to roads.
Neither plan guarantees that revenues will come in as expected, just that road funding gets priority for portions of it. Policymakers will be able to adjust as new information comes in. Revenue estimates are updated twice yearly and exactly how much revenue will increase is subject to how the economy fares.
Both the House and the Senate plans phase in the income tax earmark, with the House plan devoting $792 million in fiscal year 2019 and the Senate plan devoting $700 million in fiscal year 2018. The Legislature has already earmarked $400 million in non-road tax dollars for roads for the upcoming fiscal year, so the first $400 million of either plan represents essentially no change from current policy. Ignoring this point is one way of overstating the impact of either the House or the Senate plan on the rest of the budget.
If there were looming fiscal crises that demanded all the extra cash that’s expected to arrive into the state treasury, then critics may have a valid argument. But while new challenges may arise, there are also favorable budget trends underway.
For example, the state has fewer prisoners. There are fewer state employees. State economic growth has meant fewer people applying for government assistance, though the Obamacare-driven expansion of Medicaid will mean some increased spending. And while government pension costs are still high due to current and past underfunding, this expense has tapered off recently.
State spending interests would prefer large (or larger) taxes on fuel and vehicle registration rather than reprioritizing existing revenue streams. But they must also know this option is less likely after the resounding defeat of Proposal 1.
Michigan can use more of its projected revenue increases for road repairs and experience few or no cuts in other areas of the budget. Those who refuse to accept this possibility may be less concerned about so-called cuts and more miffed that extra money they hoped to spend on other programs would go to roads instead. They need to be reminded that a reduction in the rate of a program’s increase is not a “cut.”
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.