Policy Analysis No. 695

Ending Congestion by Refinancing Highways

Although gasoline taxes have long been the main source of funding for building, maintaining, and operating America’s network of highways, roads, and streets, the tax is at best an imperfect user fee. As such, Congress and the states should take action to transition from gas taxes to more efficient vehicle-mile fees.

One of the major failings of gas taxes is that they fail to price congested roads properly. As a result, travelers suffer from more than $100 billion worth of annual delays, and the costs to businesses are tens of billions of dollars more. A second problem is that gas taxes fail to pay for all road costs. While gas taxes collected by federal and state governments cover all or nearly all state highway costs, local governments spend about $30 billion a year out of general funds on local roads and streets.

A third problem is that inflation and increasingly fuel-efficient cars rapidly erode gas tax revenues. After adjusting for inflation, drivers today pay only a third as much for each mile they drive as they did in 1956, when Congress created the Interstate Highway System.

To fix these and other problems with gas taxes, this paper proposes an affordable vehicle-mile fee system that preserves traveler privacy, eliminates nearly all traffic congestion, adequately funds all federal, state, and local roads, and does so in a revenue-neutral manner after eliminating gas taxes and local road subsidies. In fact, in the long run the proposal may even reduce total road costs and fees because it would give road agencies incentives to operate more efficiently.

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