Michigan’s roads are crumbling and some put the estimate to fix them at almost $2 billion a year.
State lawmakers are in the midst of considering raising revenue through higher taxes on gas, and that has raised a lot of debate around what we already pay at the pump.
Michigan Radio’s Mark Brush recently wrote about how gas prices in Michigan work, and he compiled a list of four things for us to consider when thinking about what we pay at the pump.
*You can listen to our interview with Brush above.
Here’s his list:
1) The majority of the cost you pay at the pump comes from the raw product.
In Michigan, around 80% of the cost of a gallon of gas is dependent on the oil and gas market.
For more on that read this from the U.S. Energy Information Administration.
And here’s a chart Brush put together showing the breakdown in Michigan:
2) Michigan’s state taxes and fees are among the highest in the country.
If you followed the EIA link above, you’ll notice that it said “state excise taxes averaged 23.52 cents per gallon.”
Here’s where the weird thing in Michigan comes in.
Our excise tax on gas is lower than the national average – 19 cents a gallon. But we also tack on sales tax, so altogether, Michigan has among the nation’s highest state taxes and fees on a gallon of gas.
Today, we stand at No. 6 in the nation, according to the Tax Foundation:
3) The sales tax collected on a gallon of gas in Michigan does not pay for road funding.
Most of the sales tax goes to things like the general fund, schools, revenue sharing with cities, and a little to public transportation projects.
The map above shows that we’re paying an average of 41 cents a gallon for state taxes and fees. But only 19 cents of that goes to roads. Ohio drivers, for example, pay a 28-cents-per-gallon excise tax for road funding.
Lawmakers in Lansing are working on their planned changes now, which could include shifting some of the sales tax money to roads. If they do that, it means less money for other things (general fund, schools, revenue sharing, etc.).
4) Gas stations sometimes lose money on a gallon of gas.
Competition for a gallon of gas is fierce.
Think about how many people will drive for miles looking for a better deal (sometimes burning up their savings).
There’s even a real-time, crowd-sourced website dedicated to finding the best deal.
Mark Griffin of the Michigan Petroleum Association says a gas station can lose up to 20% of the business for each hour that their prices are 2 cents higher than their nearby competitor’s prices.
So he says gas stations tend to keep their profit margin on gas low (sometimes even losing a little). They make most of their money on the things they sell you inside their store.
Here’s a list of average annual “net margins” on a gallon of gas from the MPA:
In 2009 typical net margins were -1.8 cents per gallon.
In 2010 typical net margins were -0.7 cents per gallon.
In 2011 typical net margins were -0.4 cents per gallon.
In 2012 typical net margins were +0.2 cents per gallon. (That is 2 tenths of a cent profit.)
In 2013 typical net margins were nearer 0.5 cents per gallon. (That is ½ cent.)