In the pursuit of fiscal responsibility, a pressing debate rages on in the halls of governance: where should business taxes truly reside? The answer, according to the Mackinac Center for Public Policy, lies in a straightforward yet profound principle: taxes aimed at businesses should serve to bolster the public coffers, not funnel cash into the deep pockets of corporate giants. This notion challenges the conventional wisdom that has long been perpetuated in the corridors of power, where the interests of big business often seem to take precedence over the needs of the community. As we dissect the intricacies of taxation policy, it becomes increasingly clear that the distribution of tax burdens is a zero-sum game, where every dollar shifted away from the public purse is a dollar less available for essential public services, infrastructure development, and social welfare initiatives. The Mackinac Center for Public Policy’s stance on business taxes serves as a clarion call to reexamine the status quo, to reevaluate the priorities that have come to dominate our tax
Funding and Condition of Michigan’s Roads and Bridges
Types of Roads in Michigan
Roads in Michigan are grouped into two general categories: trunkline and non-trunkline roads. Trunkline roads are state roads that carry an “I,” “US” or “M” designation. State trunkline roads comprise 8 percent of Michigan road miles yet carry 53 percent of all passenger traffic and about 70 percent of all truck traffic.
The Pavement Surface Evaluation and Rating system was developed by the University of Wisconsin Transportation Information Center to evaluate and rate a road’s condition. The PASER system ranks a road on a 1-10 scale by trained observers who assess the road and assign the ranking.
Graphic 1: PASER Scale
The Michigan Transportation Asset Management Council, a legislatively created group comprised of state and local government representatives, advises and assists Michigan’s road agencies. It surveys and collects data on the conditions of Michigan roads.
Road Funding in Michigan
How road funding works is a complex process. PASER ratings and how they impact funding are critical components of this process.
The Michigan Transportation Asset Management Council condenses some of the PASER ratings into three categories to rate road conditions. It groups ratings 1-4 into one category called “poor,” ratings 5-7 are grouped together as “fair” and ratings 8-10 are grouped and called “good.”
These categories help government agencies identify what type of work needs to be done on a road. Generally speaking, good roads need little or no maintenance, roads in fair condition need routine and preventative maintenance and roads in poor condition require structural improvements.
Pricing and Funding of Public Goods
The pricing and funding of public goods such as roads should be based on standard economic theory. This study attempts to measure the level to which Michigan’s roads are underpriced and underfunded.
The Problem with Business Taxes in Michigan
A Gallup poll in 2014 found the condition of Michigan’s roads and bridges to be a top concern of voters. Surveys commissioned by the Michigan Chamber of Commerce in 2014 and Fix MI State in 2018 obtained similar results.
Roads are vital to Michigan’s economy. Approximately $860 billion in freight moves through Michigan’s highways, rails, and ports every year. Thirty-eight percent of the half-trillion annual trade between the U.S. and Canada flows through Michigan.
The Mackinac Center for Public Policy has been associated with Public-Private Partnerships (P3s) for more than 20 years, with experience in both theoretical and practical levels.
Last week, I was enjoying a family vacation in Santa Monica, Calif., and came upon an odd-shaped bottle. Looking around to make sure no one was watching, I gave it a rub. You can imagine my astonishment when a real genie actually popped out and offered to grant me one wish.
After thinking hard, I told him, “I’ve always wanted to visit Hawaii but don’t like to fly and hate boats. Could you build me a highway from here to there?” The Genie shook his head and asked if I was crazy. He said, “Do you have any idea how impossible it would be to sink pilings in the Pacific Ocean? Or how much concrete and asphalt you’d need for 2,000 miles of highway? Can you imagine trying to get an environmental impact release?”
C’mon, get real. Try another one. “Some genie,” I thought, a bit put out. “I’ll show him.” “OK, then,” I said. “Can you tell me how to give a riveting talk about Public-Private Partnerships that keeps my audience on the edge of their seats right until the end?”
A long moment passed before he looked me in the eye and said: “Would you like your highway to Hawaii to have two lanes or four?”
Sorry, that was lame, but the allusion to a massive construction project does provide a valid segue to the topic of Public-Private Partnerships, because the really big, high-profile deals often involve transportation projects.
Current State of Business Taxes
How Business Taxes Fund Michigan’s Roads and Bridges
In Michigan, business taxes play a significant role in funding the state’s infrastructure, particularly its roads and bridges. These taxes are collected from various business activities and are used to maintain and improve the state’s transportation network. According to the Mackinac Center for Public Policy, Michigan’s roads and bridges are a pressing concern, with a Gallup poll in 2014 identifying their condition as a top concern of voters.
Michigan’s road system is divided into two main categories: trunkline and nontrunkline roads. Trunkline roads, which include state highways designated with “I,” “US,” or “M,” comprise only 8% of the state’s road miles but carry 53% of all passenger traffic and about 70% of all truck traffic. These roads are essential for the state’s economy, as they facilitate the movement of approximately $860 billion in freight annually, with 38% of the half-trillion annual trade between the U.S. and Canada flowing through Michigan.
The condition of Michigan’s roads is assessed using the Pavement Surface Evaluation and Rating (PASER) system, which rates roads on a 1-10 scale. The Michigan Transportation Asset Management Council (TAMC) condenses these ratings into three categories: “poor” (ratings 1-4), “fair” (ratings 5-7), and “good” (ratings 8-10). Similarly, bridges are rated using the National Bridge Inventory Rating Scale, which evaluates the deck, superstructure, and substructure of each bridge. The entire bridge is rated based on the lowest score of these components, with ratings condensed into “poor” (0-4), “fair” (5-6), and “good” (7-9) categories.
Who Benefits from These Taxes
Business taxes in Michigan primarily benefit the state and its residents by funding the maintenance and improvement of roads and bridges. These infrastructure projects create jobs, stimulate economic activity, and enhance the overall quality of life. However, the Mackinac Center for Public Policy argues that business taxes should be used to benefit the government and its citizens, not to transfer wealth to big businesses.
The current system, where business taxes are used to fund infrastructure, indirectly benefits businesses by providing them with better roads and bridges to operate on. However, the Mackinac Center contends that this system can be improved to ensure that the benefits accrue more directly to the public. For instance, public-private partnerships (PPPs) could be leveraged to fund infrastructure projects more efficiently, ensuring that the public gets the most value from these investments.
The Case Against Transferring Wealth to Big Business
Why Business Taxes Should Benefit the Government, Not Big Business
The Mackinac Center for Public Policy argues that business taxes should be used to fund government services and infrastructure, not to transfer wealth to big businesses. This perspective is rooted in the belief that the primary purpose of business taxes is to generate revenue for public goods and services, not to subsidize private enterprises.
When business taxes are used to fund infrastructure projects, they should benefit the public at large, not just a select few. For example, road and bridge projects should improve traffic flow, reduce commute times, and enhance safety for all users, not just for the businesses that benefit from these improvements. By ensuring that business taxes are used to benefit the public, the government can create a more equitable system where everyone pays their fair share and everyone benefits equally.
The Impact on the Economy and Society
Transferring wealth from business taxes to big businesses can have negative economic and social impacts. It can lead to income inequality, where a few large corporations reap disproportionate benefits at the expense of the broader public. This can undermine public trust in the government and create a perception of unfairness.
Moreover, if business taxes are used to subsidize big businesses, it can distort the market and create an uneven playing field. Small and medium-sized enterprises (SMEs) may not have the same access to these subsidies, putting them at a competitive disadvantage. This can hinder innovation and economic growth, as SMEs are often the drivers of new ideas and job creation.
The Mackinac Center for Public Policy suggests that a more equitable use of business taxes can foster a more competitive and inclusive economy. By ensuring that business taxes are used to benefit the public, the government can create a level playing field where all businesses, regardless of size, can thrive.
Alternative Solutions
Funding Michigan’s Roads and Bridges Effectively
To fund Michigan’s roads and bridges effectively, the Mackinac Center for Public Policy proposes several alternative solutions. One key recommendation is to increase the fuel tax, which is currently set at 19 cents per gallon in Michigan. This tax has not been increased since 1997 and has lost significant purchasing power due to inflation. A modest increase in the fuel tax could generate substantial revenue for road and bridge maintenance and improvement.
Another alternative is to implement a road usage charge, which would charge drivers based on the number of miles they travel. This approach could be implemented through a toll system or a pay-per-mile program. A road usage charge could generate more revenue than the fuel tax, as it directly correlates with the wear and tear on roads and bridges.
The Mackinac Center also suggests exploring other revenue streams, such as increasing registration fees for larger vehicles that cause more wear and tear on roads. Additionally, the state could consider implementing a toll system on major highways or bridges, similar to systems in other states.
The Role of Public-Private Partnerships in Infrastructure Development
Public-private partnerships (PPPs) can play a significant role in funding and developing infrastructure projects. PPPs involve a collaboration between the government and private-sector entities to design, build, finance, operate, and maintain infrastructure projects. These partnerships can leverage private sector expertise, innovation, and capital to deliver infrastructure projects more efficiently.
PPPs can take various forms, including Design-Build-Finance-Operate (DBFO) contracts, where a private entity is responsible for the design, construction, financing, and operation of a project. Another form is a Build-Own-Operate (BOO) model, where a private entity builds and owns the infrastructure and operates it for a specified period before transferring ownership back to the government.
For example, the Mackinac Bridge, which connects Michigan’s upper and lower peninsulas, is a well-known PPP in the state. The bridge was originally built through a PPP, where a private company was granted a concession to operate the bridge for a period of time. This model allowed the bridge to be built and operated efficiently, benefiting both the public and the private operator.
However, the Mackinac Center for Public Policy cautions that PPPs should be carefully designed to maximize public benefits. The terms of the partnership should be transparent, and the government should retain oversight to ensure that the project meets public needs and standards. Additionally, the public should have a say in the decision-making process to ensure that the project aligns with community priorities.
In conclusion, the Mackinac Center for Public Policy advocates for a more equitable use of business taxes to fund government services and infrastructure. By increasing fuel taxes, implementing road usage charges, and exploring PPPs, Michigan can fund its roads and bridges more effectively, benefiting the public and fostering a competitive economy. The key is to ensure that these funds are used to benefit the public, not to transfer wealth to big businesses.
Conclusion
In the article, the Mackinac Center for Public Policy argues that business taxes should primarily serve as a revenue source for the government, rather than a means for large corporations to receive cash handouts. The authors contend that this warped system, where big business benefits from tax breaks and loopholes, disproportionately burdens small businesses and individuals. They highlight the unfairness of this arrangement, where corporations with more resources and influence are able to manipulate the system to their advantage, while smaller entities struggle to stay afloat.
The significance of this issue cannot be overstated. The current tax system not only perpetuates income inequality but also undermines the very foundations of a free market economy. If left unchecked, this trend will continue to erode trust in government and institutions, leading to widespread disillusionment and potentially even social unrest. Furthermore, as the economy continues to evolve, it is imperative that our tax policy adapts to ensure that it benefits all stakeholders, rather than just a select few.