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CRC Column

The right to criticize government is also an obligation to know what you are talking about. 
-Lent Upson, 1st Executive Director of CRC  

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What if Michigan Had Enacted a Percentage Tax on Gasoline in 1997?
November 2011
CRC Note 2011-02

In his Special Message on Infrastructure delivered on October 26, 2011, Governor Snyder proposed replacing the stateís current 19 cent per gallon tax on gasoline with a tax based on a percentage of the price at the wholesale level. Michigan raised its gasoline tax from 15 cents per gallon to 19 cents a gallon in 1997. Since then inflation and declines in gasoline purchases have both significantly eroded the purchasing power of this tax. The Governorís proposal raises the question of what the impact would have been of having enacted such a price based tax on gasoline back in 1997, rather than the 19 cent per gallon tax.

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The Governorís office has stated that it would take a wholesale tax rate of roughly 6.7 percent of price to generate the same revenue as the current 19 cent gasoline tax. The wholesale rate needed to raise 19 cents per gallon in 1997 would have been much higher since the price of gasoline was so much lower.

According to the Bureau of Labor Statistics, the average price of a gallon of gas in the Detroit region was $1.26 in 1997. Adjusting the retail price for state and federal gasoline taxes, the stateís sales tax, and a small adjustment for delivery fees and a retail markup, suggests a wholesale price of approximately $0.80 per gallon in 1997. At this price, a wholesale tax rate of 23.8 percent would have been needed to generate the equivalent of 19 cents per gallon in tax revenue in 1997. (Making these same adjustments to 2011 prices would suggest a wholesale rate of 6.6 percent to raise 19 cents, very close to the administrationís estimate.)

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