Maryland’s Blue Ribbon Commission on Transportation Funding issued its report (pdf) last week. It was chaired by my former boss Gus Bauman.
Maryland’s highly-regarded transportation network is the lifeblood of the State, directly affecting every citizen and the essential viability of our economy. Yet the State’s transportation system finds itself on the verge of financial collapse unless action is taken now to change course for a new, more secure, heading.
We must put the trust back in the Transportation Trust Fund. And we must replenish the depleted coffers of the Trust Fund. We cannot accomplish the latter without also accomplishing the former. They are inextricably linked — without re-establishing public trust in the inviolability of the Trust Fund, there will be little faith by the public that raising revenues for its transportation needs will correspondingly address those needs as promised.
I think this is critical for the future of transportation in the US. Trust funds comprised of user fees need to be dedicated to transportation. Transportation, like other public utilities, should be funded by those who benefit. If it is publicly operated, those user fees are sometimes called taxes (motor fuel taxes) or tolls, but they are no different in function than the water bill, electric bill, or natural gas bill, which charge according to use. It would be a mistake to conflate transportation funding with other aspects of government, which are also important, but whose benefits are distributed across the whole population and cannot be associated with users or direct beneficiaries. It would probably be helpful in this regard if DOTs were instead called Transportation Utilities or Road Authorities, and considered separate from the general budget.
Taxing gasoline is often seen as a nice revenue source for governments, especially in other countries. From a fund-raising perspective, gasoline consumption has some nice properties, it is especially inelastic to changes in price, demand drops only a little when prices rise a lot, and the transaction costs of collection are very low (you only need to check the refineries not each gas pump).
I don’t object to using gasoline taxes as a way of internalizing the air pollution externality, (and discouraging pollution), as it is a convenient tax with low collection costs, whose use is roughly proportional to pollution and carbon emissions. So long as this pollution and carbon tax is dedicated to reversing the pollution and health damages caused by burning fuels, this is just another user fee, in this case paying for the use of clean air and good health that are inputs to transportation. The amount of this tax is debatable, in the US it is surely too low now (about 0, since the existing taxes largely go to infrastructure), while in some European countries it might be too high (considering the amount of gas tax above and beyond what is spent on highway infrastructure may more than pay for the environmental and health effects). Carbon taxes have not yet been an easy sell in the US, but perhaps as part of a more general reform, where the funds from the tax are coupled with many other changes, this has possibilities, and if it can be shown these taxes are dedicated to some necessary service (paying for the related costs of environmental cleanup e.g.)
Further, gasoline should not be exempted from general sales or value added taxes, otherwise you have a cross-subsidy to motorists from the general population, lowering the general cost of consuming auto travel relative to other types of consumption.
But for general revenue, it is unreasonable to have a special tax on transportation fuels (after the pollution/health tax). The logic is sometimes put that gasoline taxes can operate as a ‘sin’ tax (like those on tobacco or alcohol). But if the pollution and health tax is accounted for and the money just goes to general revenue (or has sometimes been proposed, social security), you are asking for a subset of the population to pay extra for services they do not receive extra of.
I should also note, in Maryland’s report there is a shout out to Value Capture, on which I and colleagues Adeel Lari and Jerry Zhao gave some advice to the state last summer:
4. Value Capture. Value capture refers to a funding mechanism in which increases in private land values generated by a new public investment, such as a transportation system investment, are at least partially “captured” through a land related tax or special assessment. The Commission will seek to better understand the ability to implement value capture approaches in Maryland and their funding potential.