Should we raise the federal gasoline tax?

Jim Pethokoukis at AEIdeas citing in part, the Brooking report of Matt Kahn and myself: Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways, says No, we shouldn’t raise the federal gasoline tax. There are better ideas.

Kevin Drum at Mother Jones, in response says: Road Funding Isn’t Broken. Why Fix It? [Honestly, I don’t think Drum read our original piece.]

I have a couple of problems with Kevin Drum’s argument. First road funding is broken. I did my first tweetstorm in response. The text is below:

  • 1/ We spend more than we have in the Highway Trust Fund
  • 2/ We spend on new projects while giving short-shrift to maintenance and reconstruction
  • 3/ We suffer congestion which is avoidable with road pricing
  • 4/ User fees fall far short of infrastructure and social costs of transportation
  • 5/ We use pay as you go financing to pay for projects that are supposed to last decades
  • 6/ We invest in projects that have poor benefit/cost ratios, and prioritize badly
  • 7/ We plan and invest as if transportation technology and behavior will never change

Updated: Second, which I didn’t tweet, is that roads (certainly federally funded roads) are not generally a public good as Drum suggests. They may be private, or club, or common-pool resource or public, depending on their architecture. The interstate, is both excludable and rivalrous, making it a classic “private good” which happens to be publicly provided. See more on this.

Kevin Drum tweeted:

But almost none of this is related to using taxes to pay for projects. That was my focus.

To which I replied:

Why federal rather than state (most traffic is local),
Which projects (new construction vs. reconstruction)?

No one here disputes (I think) that user fees should pay for projects. Bundle by project, city, [county], state, US?

The closer you can tie revenue to benefits and costs (the more local the decisions) the better the incentives

In long (since the Tweets were in short), the current system is broken in that revenue is less than income, and less than purported “need”, and what is spent is not spent on the right things. We can try to glue Humpty Dumpty together again, or we can think about building an infrastructure funding system that is less vulnerable to the vagaries of politics. Our Fix it First proposal tried to realign priorities of the federal money that is available. The administration cited it, so while it is perhaps novel, and definitely a good idea this is hardly some radical notion; it is only innovative within the confines of federal policy discussions.

But better decisions are made when they are closer to the minehead. At the state and local level, where most of the action already happens, I think the utility model is worth looking at, but there may be other good ideas too.

Money is important, but how you raise the money (e.g. user fees (congestion pricing) – varying with levels of congestion so that they can be used as a demand management tool, how local (so people see what they are spending their own money on), how dedicated) and how you spend the money (what you build, repair, replace) are at least as important as the total amount of money.

In boom times (like now, which is as boom as it gets in modern America), we ought not be doing infrastructure projects as a jobs program, where the benefit is simply from employing people. Stimulus is not the driver here. Instead we should look at projects where the long term full benefits exceed the long term full costs. Achieving that requires reforming the system, changing where and how decisions are made, and reprioritizing.

More on Fix it First.

Abstract—

The roads and bridges that make up our nation’s highway infrastructure are in disrepair as a result of insufficient maintenance—a maintenance deficit that increases travel times, damages vehicles, and can lead to accidents that cause injuries or even fatalities. This deficit is in part due to a prioritization of new projects over care for existing infrastructure and contributes to a higher-cost, lower-return system of investment. This paper proposes a reorganization of our national highway infrastructure priorities to “Fix It First, Expand It Second, and Reward It Third.” First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.

One thought on “Should we raise the federal gasoline tax?

  1. This shouldn’t be an either-or argument. We need both. Taxing motor fuels is the most effective and least burdensome means of funding roads, but it doesn’t reduce freeway congestion in urban areas. Let’s look to tolls for intracity funding, but tax motor fuels intercity.

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