Gasoline Taxes and Infrastructure Spending

AS reported by the AP, and published in the PPH, Sens. Chris Murphy (D-Min) and Bob Corker (R-Ten) are proposing to raise gasoline taxes by 12 cents and subsequently indexing it to inflation, offsetting that increase with tax cuts elsewhere.  The move would help keep the Highway Trust Fund solvent, and increase the gas tax for the first time since 1993.

As Vox reported last month, the federal Highway Trust Fund has channeled money to states for transportation and infrastructure needs, and is facing solvency problems as Americans both drive less and purchase more fuel efficient cars:

It’s time for yet another looming transportation crisis.

States and local governments may have to halt some $47 billion worth of road, highway, and mass-transit projects starting in August — unless Congress can figure out how to replenish the federal Highway Trust Fund. If that sounds familiar, it’s because this situation has been popping up fairly regularly of late.

For decades, transportation spending in the United States was financed by a mix of federal, state, and local sources. Up until recently, the federal gas tax — 18.4 cents per gallon — covered much of that federal share.

But that’s changed dramatically in the last decade: Americans are now driving less and less, causing federal gas-tax revenues to plummet. And so, since 2008, the federal Highway Trust Fund has faced a perpetual cash crunch.

Back in 2012, Congress cobbled together enough funding from outside sources to keep the Highway Trust Fund solvent for another two years. But now the fund is nearly depleted — and will likely be empty by August. And, since lawmakers are reluctant to either slash federal transportation spending or raise the federal gas tax, they have to come up with increasingly convoluted gimmicks to keep the fund intact.

The Vox piece goes on to note that state and federal revenues from the gas tax have dipped by 20% since 2002.  To counter the dip revenues without raising the gas tax, some states are looking into a mileage tax.  From CBS Los Angeles:

The California Legislature is looking at a voluntary program that would tax motorists for every mile they drive.

KCAL9’s Bobby Kaple reports that Sen. Mark DeSaulnier, D-Concord, introduced a bill to test out the vehicle miles traveled (VMT) tax because the state’s gas tax was no longer bringing in the revenue it used to due to people driving more fuel efficient vehicles.

The program is modeled after ones in Oregon and Washington.

“We want to do as Washington and Oregon have done in a much bigger state with much longer commutes…to make sure that we find out whether it would work, whether the public would like it or not,” DeSaulnier said.

It’s unknown how much the tax would be, but Oregon currently charges its volunteers 1.5 cents per mile.

The problem with the California proposal and current Oregon program is two-fold.  First, the mechanics of tracking the mileage of drivers is not easy.  Either drivers will have to volunteer their mileage, or, as the Oregon DOT has explored, tracking mileage by installing GPS in cars or using drivers’ phones via an app.  Given the public backlash to the NSA, drones, and the like, government installed tracking devices does not appear to be a winner in the court of public opinion.

Second, there is the economic issue.  As Tim Haab wrote recently:

Taxing miles creates perverse incentives for fuel efficiency.  A $0.015/mile tax (the size of the tax mentioned in the article) is the equivalent of a $0.015 * X tax per gallon where X is mpg.  In words, a mileage tax increases the tax per gallon the more fuel efficient the car.  Now granted, with higher mpg you use fewer gallons to drive an equivalent number of miles, and in the end, everyone driving 100 miles will pay the same tax.  And from a revenue perspective, that might be OK.  But there might be a way to kill fewer birds with one stone.

As I have written a number of times, a more straightforward proposal is to simply raise the gas tax.  Reaising the gas tax accomplishes a number of things 1) It raises revenue, 2) It discourages miles driven, and 3) It increases the incentive for higher fuel efficiency.

 Another alternative to raising the gas tax was noted by AEI’s James Pethokoukis, suggesting that states lease highways to private entities who in-turn collect tolls from drivers:

Senator Mike Lee, a Utah Republican with plan to cut the gas tax by 80%, puts it this way: ” … all states and localities should finally have the flexibility to develop the kind of transportation system they want, for less money, without politicians and special interests from other parts of the country telling them how, when, what, and where they should build.” Transportation expert Rohit Aggarwala says Republicans should like the idea for its federalism, while Democrats should approve because “state and local referendums on raising taxes or issuing debt to pay for transportation projects usually pass.”

With added flexibility, AEI’s Richard Geddes thinks state and local governments could consider “investment public-private partnerships” or IP3s. In return for a large, upfront payment, a government would lease a highway to a private entity to operate and collect toll revenue. That initial payment would go into a fund, which would then issue an annual dividend to citizens based on the fund’s investment earnings much like Alaska’s Permanent Fund or Norway’s sovereign wealth fund. A recent AEI analysis performed using data from Columbus, Ohio, suggests that annual payments could be as high as $1,800.

However, as the Vox post notes, some states rely more heavily on federal funding, and would likely be unable to make up the gap in funding:

federal_share_transportation_funding

The problem of state funding has been exacerbated by the recent economic downturn as states, who provide nearly 75% of U.S. transportation funding, have cut spending for infrastructure and do not have the same revenue generating abilities as the federal government.  Without federal dollars to fill the gap, some states might experience a rapid erosion of their roads, bridges, and transportation systems.   Moreover, as Brookings noted in a study released in May, infrastructure spending has very positive impacts on the economy and labor market.

 

 

 

John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.