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Foggy about Proposal 1? Gov. Snyder explains how a sales tax increase would help fix roads

Three weeks from now, we will know the fate of Proposal 1, the plan that would raise around $1.2 billion for road funding by increasing the state’s sales tax. It would also raise money for schools and restore the earned income tax credit for low- to moderate-income families to the 2011 level.

Many people wonder why Proposal 1 isn't more straightforward. Why doesn’t it clearly state:“You pay a higher sales tax and it goes to roads?”

According to Gov. Rick Snyder, it’s the current tax structure that makes this proposal sound complicated.

“We have a really complicated system today and what this will do is actually simplify it,” Snyder said. “The starting point is the mess and this would be a much better solution.”

Currently at the pump, 19 cents per every gallon goes to fund transportation. This is the largest source of revenue for state transportation today, Snyder said. The balance of state taxes paid at the pump – the retail sales tax – then goes to local government and schools.

“And a lot of people don’t know that,” he said. “A lot of people believe everything at the pump goes to transportation.”

In order to increase transportation funding, this proposal would increase the 19 cents a gallon contribution to the transportation fund to a little under 42 cents a gallon.

“Now the issue is going from 19 to 42, if you leave the retail sales tax, our prices at the pump get awful high, much higher than other states,” Snyder said. “So, the easy way to solve that is to say, ‘let’s eliminate the retail sales tax off of fuel so everything paid at the pump will go to transportation.’”

To eliminate the retail sales tax on fuel, however, would generate a funding gap for local government and schools. To solve this issue, Snyder said that Proposal 1 would then increase the retail sales tax on other goods and services.

A bipartisan two-thirds vote in both the House and the Senate placed the proposal on the ballot. Should it pass, it would ensure that state transportation raises the $1.2 billion it needs.

“Everything at the pump will go to transportation,” Snyder said. “Our pump prices won’t get too high. We’ll not create a problem for schools and local government, in fact we’ll have some additional resources to invest. In addition, public transportation does well and there’ll be some tax relief for lower income people through the earned income credit as you said, to help offset the tax increase.”

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