Tag: gas tax

Tentative Steps Away from the Gas Tax and towards a Better System

The state of Oregon recently began a pilot program with 1,000 drivers, which charges those drivers a fee based on the miles they drive, rather than a gas tax. Several states are looking closely at Oregon’s experiment. This could mark the beginning of a major change to a much better way to finance our roads.

The states care about Oregon’s experiment because the gas tax is a lousy user fee that doesn’t come close to capturing the true cost a driver imposes on the state when he drives, whether via the wear and tear his vehicle causes to the highway, the congestion his presence on the road exacerbates, or the pollution his car emits. An optimal user fee would attempt to capture each one of those and charge a fee based on where a person drives, how much he drives, the amount of congestion on the roads he is on, and his car’s emissions. Oregon’s simple experiment captures none of that—it consists solely of a 1.5 cent per mile charge, coupled with a fuel tax credit—but with today’s technology a more advanced system could easily be implemented.

The advantage of having a sophisticated user fee for drivers is that it could dramatically lessen congestion on a road: if you charge a high fee when roads get crowded, people will postpone trips, carpool, work at home, or take mass transit. Since the majority of auto pollution comes from cars stalled in traffic, the reduction in smog would be significant. Such a user fee would also help states reduce how much infrastructure they have to build by smoothing out demand.

The complaint against such schemes is that they have the potential to invade privacy—a valid concern, but one that can be addressed with adequate regulation, and an open source software system that can be examined by anyone to determine if it is sufficiently secure.

Coercion and Boondoggles in the Name of Green Transportation

For most of Obama’s years as president, he has opposed raising the gas tax. Now, in his last, lame-duck year, he is proposing a $10 per barrel tax on oil. Since a 42-gallon barrel of oil produces about 45 gallons of gasoline, Diesel, jet fuel, and other products, this is roughly equal to a 22 cent per gallon gas tax, well above the current 18.4 cent tax.

The distinction between Obama’s oil tax and a gas tax is that the oil tax wouldn’t go into the Highway Trust Fund, where up to 80 percent goes for roads and 20 percent goes for transit. Instead, he proposes to spend $20 billion per year on alternatives to autos, including urban transit, high-speed rail, and mag-lev. Another $10 billion per year would be given to the states for programs that would supposedly reduce carbon emissions such as “better land-use planning, clean fuel infrastructure, and public transportation.” Finally, $3 billion would go for self-driving vehicle infrastructure that is both unnecessary and intrusive.

Obama proposes that the oil tax be phased in over five years, so that $33 billion is the average of the first five years; when fully phased in, the tax would bring in nearly $60 billion a year. This would be a huge slush fund for all kinds of social engineering programs.

The Republicans who run Congress plan to ignore Obama’s plan. The president’s “proposals are not serious, and this is another one which is dead on arrival,” says Senate Environment & Public Works Committee Chair James Inhofe (R-OK). Still, it’s worth looking at the plan as a preview of what might be proposed by the next president if that president happens to be a Democrat.

Getting Returns from Infrastructure

While many interest groups are promoting increased federal spending on infrastructure on the grounds that it will spur economic growth, the Wall Street Journal reports that the “benefits of infrastructure spending [are] not so clear-cut.” Yet there is a simple way to determine whether a particular infrastructure project will generate economic benefits.

Spending on transportation infrastructure, for example, generates benefits when that new infrastructure increases total mobility of people or freight. New infrastructure will increase mobility if it provides transportation that is faster, cheaper, more convenient, and/or safer than before. 

In 1956, Congress created the Interstate Highway System and dedicated federal gas taxes and other highway taxes to that system. The result was the largest public works project in history and one of the most successful. Today, more than 20 percent of all passenger travel and around 15 percent of all freight in the United States is on the interstates.

Moreover, this is all new travel; the interstates didn’t substitute for some other form of travel, as other highway and airline travel) have also significantly increased in those years. (Rail passenger travel decreased, but that decrease was a lot smaller than increases in other travel.) The interstates were successful because they provided transportation that is faster, cheaper (because it saves fuel), more convenient, and safer than before. 

Making War on User Fees

The Highway Trust Fund hasn’t worked, says a new report from the Eno Transportation Foundation, so Congress should consider getting rid of it and funding all transportation out of general funds. In other words, the transportation system is breaking down because it has become too politicized, so we should solve the problem by making transportation even more political.

Eno (which was founded by William Phelps Eno, who is known as the “father of traffic safety”) claims this report is the result of 18 months of work by its policy experts. Despite all that work, the report’s conclusions would only make matters worse.

“The user pay principle works in theory,” says the report, “but has not worked in practice, at least as applied to federal transportation funding in the United States to date.” Actually, it worked great as long as Congress respected that principle, which it did from roughly 1956 through 1982. It only started to break down when Congress began diverting funds from highways to other programs. Then it really broke down when Congress, in its infinite wisdom, decided to spend more from the Trust Fund than it was earning from user fees. (It made the decision to spend a fixed amount each year regardless of revenues in 1998, but spending only actually exceeded revenues starting around 2008.)

Some argue that such breakdowns in the user-fee principle are inevitable when politicians get involved. This suggests that the government should get out of the way and let user fees work again. But Eno ignores that idea, and simply dismisses user fees altogether.

Eno suggests Congress has three options:

  1. Adjust spending to revenues, either by raising gas taxes or reducing spending.
  2. Fund some things out of gas taxes and some things out of general funds (which is more-or-less the status quo).
  3. Get rid of the Highway Trust Fund and just fund all transportation out of general funds.

“Any of these ideas would represent a dramatic improvement over the existing system,” says Eno, which isn’t true since the second idea is, pretty much, the existing system. But “based on our analysis, solution 3 is at least worth exploring.”

Lessons from the New Transit Data

The American Public Transportation Association (APTA) argues that a 0.7 percent increase in annual transit ridership in 2013 is proof that Americans want more “investments” in transit–by which the group means more federal funding. However, a close look at the actual data reveals something entirely different.

It turns out that all of the increase in transit ridership took place in New York City. New York City subway and bus ridership grew by 120 million trips in 2013; nationally, transit ridership grew by just 115 million trips. Add in New York commuter trains (Long Island Railroad and Metro North) and New York City transit ridership grew by 123 million trips, which means transit in the rest of the nation declined by 8 million trips. As the New York Times observes, the growth in New York City transit ridership resulted from “falling unemployment,” not major capital improvements. 

Meanwhile, light-rail and bus ridership both declined in Portland, which is often considered the model for new transit investments. Light-rail ridership grew in Dallas by about 300,000 trips, but bus ridership declined by 1.7 million trips. Charlotte light rail gained 27,000 new rides in 2013, but Charlotte buses lost 476,000 rides. Declines in bus ridership offset part or all of the gains in rail ridership in Chicago, Denver, Salt Lake City, and other cities. Rail ridership declined in Albuquerque, Baltimore, Minneapolis, Sacramento, and on the San Francisco BART system, among other places. 

APTA wants people to believe that transit is an increasingly important form of transportation. In fact, it is increasingly irrelevant. Although urban driving experienced a downward blip after the 2008 crash, it is now rising again, while transit outside of New York City is declining. Source: Urban driving data from Federal Highway Administration, urban population from the Census Bureau, and transit numbers from APTA. Transit PM = transit passenger miles.

Rail and bus ridership have grown in Seattle and a few other cities, but the point is that construction of expensive transit projects with federal funds is not guaranteed to boost transit ridership. In many cases, overall transit ridership declines because the high costs of running the rail systems forces transit agencies to cut bus service.

APTA wants more federal funding because many of its associate members are rail contractors who depend on federal grants to build obsolete transit systems. Light-rail lines being planned or built today cost an average of more than $100 million per mile, while some cities have built new four-lane freeways for $10 million to $20 million per mile, and each of those freeway lanes will move far more people per day than a light-rail line. 

Congress will be reconsidering federal funding for highways and transit this year, and APTA wants as much money as possible diverted to transit. President Obama has proposed a 250 percent increase in deficit spending on transportation, most of which would go to transit.

Transit only carries about 1 percent of urban travel, yet it already receives more than 20 percent of federal surface transportation dollars. Since most of those federal dollars come out of gas taxes, auto drivers are being forced to subsidize rail contractors, often to the detriment of low-income transit riders whose bus services are cut in order to pay for rail lines into high-income neighborhoods.

The real problem with our transportation system is not a shortage of funds, but too much money being spent in the wrong places. New York City transit was the only major transit system in the country that covered more than half its operating costs out of fares in 2012; the average elsewhere was less than 30 percent. Funding transportation out of user fees, such as mileage-based user fees and transit fares, would give transportation agencies incentives to spend the money where it is needed by transport users, not where it will create the most pork for politicians.