Economics, Energy and the Environment, Pethokoukis

The US needs better roads and bridges–and less congestion–but not a higher federal gasoline tax

Image Credit: shutterstock

Image Credit: shutterstock

Republicans outraged the US has the highest corporate tax rate among advanced economies should be equally upset about America’s subpar national transportation system. For instance: the most recent global competitiveness report from the World Economic Forum ranked the quality of US roads as just 18th in the world.

Now the case for upgrading American transportation infrastructure isn’t about short-term Keynesian stimulus. It’s about long-term growth. “Places that have the greatest  accessibility, that enable more people to interact in less time, produce the greatest wealth,” write transportation experts Matthew Kahn and David Levinson in a 2011 report. More accessibility also means more economic mobility. A 2013 analysis from the Equality of Opportunity Project found climbing the ladder much harder in cities with longer commute times. Indeed, the monetized cost of US congestion is around $120 billion a year.

Unfortunately the debate about US transportation policy resembles the one about the minimum wage. The Highway Trust Fund is almost depleted, and some in Washington want to finance it by raising the federal gasoline tax. They note the current 18.4-cent rate hasn’t increased since 1993, which mean its real value has declined by almost 40%. So why not phase in a big gas tax increase and then index it for inflation?

Likewise, advocates of raising the federal minimum wage point out it hasn’t kept up with living costs. Their solution: raise the minimum wage to $10 or more from its current $7.25 level and then index that amount for inflation. While such a proposal has the advantage of simplicity and builds on the status quo, there’s a strong argument that it’s inferior to expanding the Earned Income Tax Credit as a lever for raising living standards of low-income workers.

So, too, the easy, obvious fix for upgrading US roads and bridges — just raise the federal gasoline tax — isn’t the necessarily the best one. Here’s a better idea: instead of raising the gas tax, eliminate it. Oh, you wouldn’t have to do all at once. You could phase it out over several years. Meanwhile, states and cities could start calculating what their infrastructure needs really are — repairing existing roads vs. building new ones — and the best way to pay for them, such as state gas taxes, broader sales taxes, tolls, or  advanced congestion pricing.

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.

Now if killing the gas tax is too big a step for gridlocked Washington, here is another option: freeze it. Kahn and Levinson propose leaving the gas tax as is, but revenue would be devoted solely to “to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System.” Maintenance could include developing innovative pricing schemes to reduce congestion. And even before potential new revenue from those ideas, this plan would effectively increase maintenance spending by more than $12 billion a year.

Funding for additional capacity would come from a new Federal Highway Bank, which would loan money to states “contingent on meeting a stringent performance test and demonstrating the ability to repay the loan.” Kahn and Levinson anticipate those loans would be repaid  principally with a dedicated revenue stream from user charges, which would also reduce congestion.

The US needs a smoother ride to higher economic growth and increased prosperity. And it can get there without raising the federal gasoline tax.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

4 thoughts on “The US needs better roads and bridges–and less congestion–but not a higher federal gasoline tax

  1. I would prefer to see an “Infrastructure Bank” set up. I would fund it with a payroll tax dedicated to infrastructure and fund the payroll tax with a corresponding reduction in the lowest marginal tax rate (currently 10%).

    This would provide a steady, dedicated funding source that all working people would contribute to. Democrat demands for progressive taxation could be assuaged by playing with the income subject to the tax (yet still keeping it revenue neutral – expand income to be assessed and lower the rate for progressive increases). Republican distaste for larger government programs could be assuaged by requirement to turn over ~90% of funding back to states on a contribution basis (reserving some for big projects that cross state lines such as ATC, grids etc.)

  2. A curious idea from Lee. The conservative leaning Tax Foundation wants the opposite: ratchet up gas taxes and tolls so that the users of highways pay for them, (and pay enough one hopes that new highways don’t open at capacity on Day One.) The foundation argues persuasively that building roads with general funds makes them free to users, and we are half way there now. ,

    Yes, both taxes and tolls are regressive. But consistency is better than learning, as some did in 2006, that a new home in ruburbia is two tanks of gas/week too remote.

  3. About 30%of the gas tax (all 50 cents of it, US average) goes to non-road purposes – transit, sidewalk/bike paths, beautification, etc. Return that to road building solely.

  4. State and local taxes already account for 73 percent of road building funds. The federal gas tax goes almost entirely to maintaining the Interstate highway system.

    There is a reason for this. State’s like Montana, Wyoming, Utah and New Mexico do not have sufficient state tax revenues to maintain long stretches of interstate. Not enough people. So the feds help out there to keep transportation flowing between the eastern states and the west coast. If it were left up to the states entirely Montana might just tell the rest of the country to screw themselves and let I-90 and I-94 fall into disrepair.

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