Is Raising the Gas Tax Really the Answer?

Cross-posted from the Frontier Group

In the 1920s, Great Britain debated the future of its Road Fund – a pot of money raised from vehicle excise taxes and devoted exclusively to road repair. Then-Chancellor of the Exchequer Winston Churchill opposed the fund, arguing that, if drivers paid taxes dedicated solely to roads, “It will be only a step from this for them to claim in a few years the moral ownership of the roads their contributions have created.”¹

Who pays and who "owns" the roads? Photo: Richard Masoner

Who pays and who “owns” the roads? Photo: Richard Masoner

Here in the United States, we have long been under the misimpression that the taxes paid by drivers – most notably the gas tax – cover the cost of building and keeping up our roads. And is there any doubt that those contributions have come with a claim of moral ownership? For decades, transportation policy has been shaped by the idea that drivers do their “fair share” to maintain the infrastructure they use, while other transportation users – those who ride transit, ride bicycles or walk – are little better than freeloaders.

If you’ve ever wondered why some people get enraged at the so-called “diversion” of small amounts of gas tax revenue to transit, or are apoplectic over the dedication of a small amount of roadway space to bike lanes, or perceive efforts to make communities more walkable as a “war on cars,” it all comes down to the deeply ingrained belief that roads have been built solely by and for the exclusive benefit of motorists.

A new report we at Frontier Group have co-authored with U.S. PIRG Education Fund, Who Pays for Roads?, explodes the “users pay” myth. Nearly half of the money now used to build, maintain and operate highways now comes from ordinary taxpayers – you and me – regardless of how much we drive.

The amount of general tax revenue we spend on highways now exceeds government spending on transit and other forms of transportation. Far from “diverting” gas tax revenues to transit, we are instead diverting tens of billions dollars of general tax revenue each year to support highway use. And if one factors in hidden tax breaks for driving and the broad societal costs of car crashes and air pollution, the financial burden of highway use on the general public is even greater.

Many smart and well-intentioned folks will look at these conclusions and diagnose the problem as a failure to ensure that motorists pay the full costs of driving. And I couldn’t agree more.

But in the context of the current transportation funding debate, that advocacy often translates into support for raising the federal gas tax. And that’s where advocates of a more balanced, efficient and sustainable transportation system need to do some hard thinking.

That’s because the “users pay” myth hasn’t just shaped how we allocate the costs of transportation, but it has also influenced how we spend transportation dollars. The federal transportation program is largely predicated on the notion that motorists – if not individually, then at least as residents of particular states or users of particular types of transportation infrastructure – “pay for what they get and get what they pay for” in gas taxes. There are exceptions to this – the 20 percent allocation of federal gas taxes to the Highway Trust Fund’s mass transit account is one – but they are clearly understood to be exceptions and the investments they support are often sold as bringing benefits to motorists.

But from the former “equity bonuses” now baked into funding allocation formulas to the differential level of scrutiny given to highway versus transit projects, the “users pay” myth permeates transportation policy at the federal level. And that “users pay” framework has continued to shape transportation spending even as more and more of the actual financial burden of transportation has been shifted onto general taxpayers over the last decade.

It is even worse in many states, which have statutory or constitutional prohibitions – some nearly a century old – against the use of gas tax revenue for anything other than roads and bridges. In those states, drivers may benefit from federal transportation funding that increasingly comes from general taxpayers, travel on local roads that have been paid for through general taxes, enjoy highway improvements paid for through local-option sales taxes, and have their fuel purchases exempted from the state general sales tax. But heaven forbid that a single penny of gas tax revenue be “diverted” for another use.

It would have been Churchill’s worst nightmare. As he wrote in 1925:

Entertainments may be taxed; public houses may be taxed; racehorses may be taxed…and the yield devoted to the general revenue. But motorists are to be privileged for all time to have the whole yield of the tax on motors devoted to roads. Obviously this is all nonsense … Such contentions are absurd.

Let’s be clear: there is a transportation funding crisis. It does need to be addressed. And raising the federal gas tax may be the most straightforward, most equitable solution to addressing it in the short term.

But if, by some miracle, Congress should opt to increase the gas tax, it should not be celebrated as a victory. Rather, we should recognize that by doing so, we are merely keeping a moribund and wildly out-of-step federal transportation policy on life support for another few months or years. And we should then resolve to have the next national transportation debate be not about “plugging the funding gap” but about rethinking transportation for the 21st century.

And if Congress, as appears likely, resorts to budgetary gimmicks or dips into the general fund once again to pay for transportation, we must make sure that the American people recognize that action as one more step toward shifting the “moral ownership” of our transportation system away from a single class of users and toward the place where it really belongs: with all of us.

1. This and other Churchill quotes come from the fascinating website, which provides a through-the-looking-glass Brit’s-eye view of this set of issues. The history section is worth a read.