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An economist walks us through the pros and cons of Proposal 1

May 4, 2015

Proposal 1 seeks to improve the state of Michigan's roads.
Credit user: Dwight Burdette / Wikimedia Commons

Tomorrow voters go to the polls to decide the fate of Proposal 1 - the road-funding proposal that would raise the state's sales tax from 6 to 7 percent.

What would that one penny increase really mean?

For the answer, we turned to Charles Ballard. He's an economist at Michigan State University.

Ballard explained how, if it passes, the ballot proposal would remove sales tax from gasoline purchases. That would mean less money for things like schools and cities. To make up for this $700 million in lost revenue, the state sales tax would increase by one percentage point.

Ballard said he's supporting the measure because he doesn't want to live in a state with "third world roads."

He pointed out that raising revenue from a sales tax misses a large chunk of the economy. Sales taxes only touch about 3/8th's of purchases in the economy, such as restaurant food and retail goods. The rest of the economy, mostly service and entertainment, is left untouched. Ballard suggests a policy proposed by economists over the years which would make tax legislation more fair and efficient: instead of increasing the sales tax to 7%, we should tax everything at a much lower rate.

Ballard says this is not likely to be taken up by the Legislature because of all the lobbyists involved in lawmaking.