I’ve been thinking for a while about how we pay for roadways, transit, sidewalks and bikeways. A major source of payment is about to run out, the Federal Highway trust fund*.
Federal taxes are not the whole story of roadways. On average, American car drivers spend 50 cents a gallon in state and federal taxes. Only 18 cents of that is federal taxes. State taxes vary, from a low of 8 cents a gallon in Alaska, to a high of 50 cents a gallon in New York. Most highway budgets are dominated by state gas tax revenue, not federal. The federal highway budget is considerable, however, and their offer of matching or even majority funds often determines whether road or transit projects will get built. Of course, states are also struggling with decking gas gas rates, as the whole nation has become skeptical that higher taxes are the answer.
The gas tax is charged based on the volume of gas purchased, not on the price of that gas. Most states and the federal government levy a gas tax for each gallon of fuel. If the market price of gas is cheap, the price at the pump will be cheap, with a higher proportion devoted to the gas tax. If the market price of oil is expensive, then the retail price will be expensive. In the last two decades the inflation adjusted price at the pump has fluctuated fourfold, but the price of taxation has changed barely any at all. Compare American Gas tax rates with those of other countries, and you can see why many countries pay per liter what we pay per gallon.
One effect of high gas taxes in the “rest of the west” is that they stabilize the vehicle market. If you buy a car in Europe, you can be sure that over the life of that car it will cost the same to fill it with fuel. The consequence of this has been wild fluctuations in the manufacture and make of fleets. When gas is cheap, drivers reasonably buy larger less fuel-efficient cars and SUVs. Buying fuel efficient, more expensive, and less safe cars is frivolous when gas is cheap. When gas becomes expensive, people start to see the point of buying smaller or innovative cars designed to consume less dear fuel.
Our state or federal gas tax rates do not vary with the price of gas, and is only changed in response to political wrangling and policy discussions.
The gas tax once covered almost all the cost of road construction and maintenance. The feedback loop was perfect. The more people drive, the more they spend on gas, and the more they contributed to the construction of those roads, which would further incent people to drive more. And so the cycle should have gone, forever, a positive feedback loop for making infrastructure that served the needs of its users only.
There are two problems with this. The cost of maintenance has recently outstripped the revenues of the gas tax. Right now, the federal and state gas tax only covers 50-60% of the cost of highway maintenance. The rest has to be covered from the general fund. Many states and localities spend as much on maintaining their roads as they do on schools, emergency responders or police. Those are expected expenses, but the roads were supposed to be paid for through more clever schemes. Also, the gas tax is the an expense of traffic users, but traffic is a subset of transportation. People want to get where they are going, they do not inherently want to get there in traffic. If maximizing traffic does not maximize transportation, then something is wrong.
With rising gas prices, car owners have moved to buy more hybrid and electric vehicles, to reduce their consumption of expensive gas. This is a great idea for household finance, but a problem for highways and transit funded through the gas tax. Some states are entertaining the notion of surcharging the owners of electric, hybrid and small efficient cars like the Smart Car or the Fiat 500. Because of the change in fleet fuel efficiency, reduction in vehicle miles traveled since 2007, and congressional unwillingness to change the gas tax to keep pace with inflation, the highway trust fund is due to become insolvent in 2014.
The new idea in roadway financing is taxing Vehicle Miles Traveled (VMT). This is a great idea whose time has come, but its incentives are a little different than the gas tax. If VMT is taxed directly, without accounting for vehicle size, then larger vehicles, which put more wear and tear on the roads, could get a free ride. Almost no one is considering VMT tax without correcting for vehicle mass, however. A properly load rate VMT tax could account for everything down to bicycles, which could pay a penny or two every ten miles while larger trucks could pay a dollar or more per mile driven. The VMT tax would punish long distance commuters and travelers, who currently use less gas per mile for long distance high speed driving than shorter distance travelers in congested stop and go traffic. Another objection with the VMT tax is the use of transponders to record and bill trips on an daily basis. While this would be an unprecedented richness of data for traffic studies, it would also be a unheard of invasion of privacy for drivers used to unmonitored freedom of movement in traffic.. A simple alternative would be annual payment of the VMT tax based on vehicle inspection and registration. This annual cost, in the hundreds or even thousands of dollars every year, would probably make American drivers more conscious of the costs of driving, in the same way elections would turn out differently if they were held on April 15.
*I welcome knowing how I got this wrong. I have a wide spreadsheet of highway budgets back to 1921, but telling the story of gas taxes in broad strokes without boring the piss out of you requires broad narrative strokes.