Archives: 01/2013

Will Vehicle-Mile Fees Be a User Fee or a Tax?

Earl Blumenauer, Oregon’s bow-tie wearing, bicycle-riding member of Congress, has endorsed the idea of replacing gas taxes with vehicle-mile fees. Last week, he introduced a bill directing the Department of Transportation to start vehicle-mile fee pilot programs in every state and authorizing $150 million to fund the pilots. Since privacy is a major concern for many people, Blumenauer wisely makes protection of personal privacy a top priority of the legislation.

Blumenauer’s support for vehicle-mile fees is refreshing considering that, during the last Congress, the House passed a bill forbidding the Department of Transportation from even studying the possibility of such fees. (The otherwise-fiscally conservative member of Congress who introduced that bill ended up being a one-term congressman.) But Blumenauer’s stance also has some questioning his motives as he is one of Congress’ leading advocates of funding rail transit and other non-highway programs out of gas taxes.

It’s true that Blumenauer supports building streetcar lines more than new roads. In introducing the bill, the congressman focused on the fact that, over the past four years, Congress has had to transfer $48 billion in general funds to the Highway Trust Fund, and is currently spending $15 billion a year more on surface transportation than is coming in from gas taxes and other highway user fees. The Oregon representative obviously hopes vehicle-mile fees will help close the gap, allowing him and his colleagues to continue funneling billions of dollars into rail transit and other forms of travel that are actually pretty obsolete.

Something to Like in President Obama’s Second Inaugural Address

Most of President Obama’s second inaugural address was painful. For libertarians. For those who understand the difference between science and opinion. For those who have tracked his administration’s relationship with openness and the rule of law. All of which cringe-inducing elements undermined the splendor of this gem:

We, the people, declare today that the most evident of truths – that all of us are created equal – is the star that guides us still; just as it guided our forebears through Seneca Falls, and Selma, and Stonewall; just as it guided all those men and women, sung and unsung, who left footprints along this great Mall, to hear a preacher say that we cannot walk alone; to hear a King proclaim that our individual freedom is inextricably bound to the freedom of every soul on Earth.

It’s not the first time the president has tied “Seneca Falls, and Selma, and Stonewall” together. Here’s hoping more politicians do.

Getting Highway Numbers Right: The Tax Foundation’s Response

On Thursday, January 17, the Tax Foundation (TF) issued a paper arguing that only 32 percent of state and local highway costs were paid out of user fees, while the remaining costs came from “general funds.” In a post here, I pointed out that, actually, user fees for highways cover 76 percent of the costs of roads and most of the remaining 24 percent come from interest on user fees before they are spend and bond sales that will be repaid out of user fees.

TF replied, saying “O’Toole conflates taxes and fees.” In fact, TF specifically said that state gas taxes are user fees, but somehow defined federal gas taxes as “general funds.” I simply argued that, to be consistent, TF should count federal gas taxes as user fees as well.

TF went on to say, “O’Toole suggests we include federal gasoline tax collections in state-local revenue.” Again, TF said that federal gas tax collections are “general funds” and I disagreed with that statement. If state gas tax collections are user fees, then federal gas tax collections are too. They are certainly not general funds, any more than state gas taxes are general funds, since federal law dedicates them to transportation projects and mostly to highways.

TF said, “O’Toole suggests that we include motor vehicle registration taxes and fees, but not the associated expenses” such as highway patrols. In fact, I said nothing about the associated expenses because, for the most part, those expenses are already included in the reported $155 billion cost of highways.

TF said, “O’Toole suggests that we include state and local bond sales for road construction, which would double-count revenue.” But nothing I said would double-counting revenues. What I said was that bond sales for highways are not, in any sense, “general funds” if they will be repaid out of user fees.

TF said, “O’Toole suggests that we include $13 billion in “investment income” on state-local gasoline tax and user fee revenue, but that is not a net interest figure.” What TF means is that some of that interest might come from investments of non-user fees, which is true. But since user fees cover the vast majority of state and local road costs, interest on those user fees makes up the vast majority of interest. Yet TF counted all interest as “general funds.”

TF said, “O’Toole suggests that we use Federal Highway Administration data rather than U.S. Census Bureau data. We have no evidence that the U.S. Census Bureau is unreliable in this area.” I suggest that the fact that the Census Bureau, which uses secondary data, differs from the Federal Highway Administration, which uses primary data, is itself evidence that the Census Bureau data are unreliable.

In sum, by TF’s own definition of user fees as being gas taxes and tolls, something like 55 percent of the cost of roads is collected in user fees. Adding vehicle registration fees brings this to 76 percent, and most of the rest is covered by bonds that will be repaid by user fees and interest on those user fees. TF’s reply failed to address my main point, which is that none of these revenues can be considered “general funds.”

China: Money Matters

Contrary to what the doomsters have been telling us, China’s economy is not on the verge of collapse. As the Wall Street Journal’s man in Beijing (and my former student), Aaron Back, reported: “China’s economic growth accelerated in the fourth quarter of 2012.” Indeed, China’s fourth quarter GDP growth rate came in at a strong 7.9%.

What the doomsters and many other Pekingolgists fail to grasp is that money matters. Indeed, it dominates fiscal policy, and nominal GDP growth is closely linked to growth in the money supply – broadly measured.

China’s most recent acceleration in GDP growth did not catch me flatfooted, because China’s money supply has been surging (see the accompanying chart).

In fact, China’s M2 money supply measure is 9.7% above the trend level. Money matters.

Battling over Keystone XL

The Washington Post has an article today on the battle over the Keystone XL pipeline.  There is a sense of urgency on both sides as the decision on the project is expected to be fast approaching.

The Post features arguments from pipeline proponents that the project will provide an economic boost to the state of Nebraska, and from pipeline opponents that the oil carried though it will lead to more carbon dioxide emissions than previously thought, thus upping the impact on global warming and climate change.

But the numbers being tossed about don’t tell the whole story.

First, a look at the new economic claims. An analysis from the Consumer Energy Alliance concludes that during the two year construction phase of the pipeline, the economic activity in Nebraska will increase by a bit more than $400 million per year—generating directly or indirectly, about 5,500 new jobs. Sounds impressive, but this boost is short-lived. After that, for the next 15 years, the economic input drops down to about $67 million/yr, supporting about 300 jobs.  A net positive, but not as much as many proponents claim.

The climate claims are even less significant. In its new report, Oil Change International asserts that the current estimates of the well-to-wheel (WTW) carbon dioxide emissions from oil extracted from the Alberta tar sands have been underestimated. They claim that the State Department failed to fully include carbon dioxide emissions from the burning of the petroleum coke that is produced as a side product of producing oil from the tar sands. This “petcoke” can be burned like coal, and in fact, is cheaper and more energy dense than coal, so it is often preferable.  According to Oil Change International, including the petcoke in the calculation would increase the WTW carbon dioxide emissions by about 13 percent.

There are several things wrong with the Oil Change International analysis. First is that the State Department actually did include a considerable discussion of the influence of the treatment of petcoke in its assessment.  It concluded, just like Oil Change International, that if the petcoke is burned, it increases the total wells-to-wheels carbon dioxide emissions of Canadian tar sands oil by the same 13 percent.  But what the State Department points out, and which Oil Change International plays down, is that the burning of petcoke to produce energy by and large displaces the use of coal for the same purpose.  So instead of the total emissions, what is important is the incremental carbon dioxide emissions produced from using petcoke instead of coal. And when that number is used, the WTW emissions increase by less than 1 percent—which is why the State Department concluded that the fate of the petcoke really wasn’t all that significant in the overall WTW emissions calculation.

But whether consideration of petcoke increases the WTW carbon dioxide emissions of the tar sands oil by 1%, 13%, or any number in between, really doesn’t matter anyway in terms of its impact of global warming.  For as I have shown previously, the global warming potential of the Keystone XL pipeline oil is only about 0.00001°C/yr.  Increase that by 13% and you basically get the same environmentally insignificant number.  In fact, you’d have to increase it by several orders of magnitude before it is even worth paying attention to.

The war over the pipeline will probably rage on until (and even after) a decision is reached in a couple of months. Hopefully, emotion will play a role secondary to facts.

Getting Highway Numbers Right

“Gasoline taxes and tolls pay for only a third of state and local road spending,” claims a report released yesterday by the Tax Foundation, an independent, nonpartisan group. “The rest was financed out of general revenues.” According to the group’s calculations, users paid just $49 billion of the $155 billion cost of roads in 2010, the last year for which data are available.

I am the first to admit that highways are subsidized. But do subsidies cover more than two-thirds of the costs of roads? No way. The Tax Foundation, which strives to be “guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability,” is simply wrong.

First, the group counts federal aid to states as “general funds.” In fact, 100 percent of that federal aid comes from gas taxes and other user fees such as taxes on large trucks and tires.

According to the Federal Highway Adminitration’s Highway Statistics table HF-10, the feds collected $35 billion in gas taxes in 2010, of which $29 billion was given to the states for roads. For some reason, the Tax Foundation counts state gas taxes as user fees, it doesn’t count federal gas taxes as user fees.

Raisin Farmers Have Constitutional Rights Too

Long-time California raisin farmers Marvin and Laura Horne have been forced to experience firsthand the costs that America’s regulatory state imposes on entrepreneurs, especially innovative members of the agriculture industry. 

No longer do farmers enjoy the ancient right to sell their produce and enjoy the fruits of their labor.  Indeed, Horne v. U.S. Dept. of Agriculture exemplifies the extent to which all property and business owners are made to suffer a needless, Rube Goldberg-style litigation process to vindicate their constitutional rights.  

In this case, the USDA imposed on the Hornes a “marketing order” demanding that they turn over 47% of their crop without compensation.  The order—a much-criticized New Deal relic—forces raisin “handlers” to reserve a certain percentage of their crop “for the account” of the government-backed Raisin Administrative Committee, enabling the government to control the supply and price of raisins on the market.  The RAC then either sells the raisins or simply gives them away to noncompetitive markets—such as federal agencies, charities, and foreign governments—with the proceeds going toward the RAC’s administration costs.  

Believing that they, as raisin “producers,” were exempt, the Hornes failed to set aside the requisite tribute during the 2002-2003 and 2003-2004 growing seasons.  The USDA disagreed with the Hornes’ interpretation of the Agricultural Marketing Agreement Act of 1937 and brought an enforcement action, seeking $438,843.53 (the approximate market value of the raisins that the Hornes allegedly owe), $202,600 in civil penalties, and $8,783.39 in unpaid assessments.  After losing in that administrative review, the Hornes brought their case to federal court, arguing that the marketing order and associated fines violated the Fifth Amendment’s Takings Clause.  

After litigating the matter in both district and appellate court, the government—for the first time—alleged that the Hornes’ takings claim would not be ripe for judicial review until after the Hornes terminated the present dispute, paid the money owed, and then filed a separate suit in the Court of Federal Claims.  The U.S. Court of Appeals for the Ninth Circuit proved receptive to the government’s reversal.  Relying on Williamson County v. Hamilton Bank (1985)—the Supreme Court case that first imposed ripeness conditions on takings claims—the court ruled in a revised opinion that the Tucker Act (which relates to federal waivers of sovereign immunity) divested federal courts of jurisdiction over all takings claims until the property owner unsuccessfully sought compensation in the Court of Federal Claims.  In conflict with five other circuit courts and a Supreme Court plurality, the Ninth Circuit also concluded that the Tucker Act offered no exception for those claims challenging a taking of money, nor for those claims raised as a defense to a government-initiated action.  

The ruling defies both law and common sense.  It stretches the Supreme Court’s ripeness rule beyond its moorings and it forces property owners to engage in utterly pointless, inefficient, and burdensome activities just to recover what should never have been taken in the first place.  Having filed an amicus brief that supported the Hornes’ successful petition for Supreme Court review, Cato has again joined the National Federation of Independent Business, Center for Constitutional Jurisprudence, and Reason Foundation on a new brief that urges the Court to affirm its plurality decision in Eastern Enterprises v. Apfel (1998), which held that an unjustified monetary order is inherently a taking without just compensation.  Any ruling to the contrary imposes a pointless burden on property owners, particularly when the government initiated the original proceeding.  

We argue that the Ninth Circuit’s overbroad reading of Williamson County stretches the ripeness doctrine beyond any sensible reading; it allows the government to initiate a claim and then block an important constitutional defense on the fallacious notion that it has been brought prematurely.  We advocate a rule that is more compatible with the history and text of the Fifth Amendment—that the most natural reading of the Takings Clause demands that compensation be offered as a prerequisite to government action.  Indeed, from the time of Magna Carta, just compensation has been required before property was seized. 

Moreover, just as the Court wouldn’t permit the government to seize property without some prior “due process of law,” it shouldn’t permit the government to seize property without prior “just compensation.”  The Court has no reason to treat takings claims with less deference than rights anchored in other constitutional provisions.

Horne will be argued at the Supreme Court on March 20.