A Big Hidden Subsidy for Highways That Everyone Forgets

Subsidies for driving in America are so numerous and layered, it can be hard to sort them out. We have general funds paying for roads, tax breaks for big oil companies, free parking nearly everywhere.

Exempting gasoline from state sales tax is a major subsidy for driving. Photo: Wikimedia
Exempting gasoline from state sales tax is a major subsidy for driving. Photo: Wikimedia

David Levinson at the Transportationist picks out another one that’s a lot more obscure, but still substantial:

The hidden subsidy is in states which have general sales taxes, but don’t apply them to gasoline. Thus, in Minnesota, I pay a sales tax on prepared food, but not gasoline (or clothing, or random other things). Thus relatively, spending is encouraged in those untaxed areas, which are 6.875% less taxed than other goods. This lack of a tax is not a subsidy in a state which doesn’t tax sales, and instead taxes income or property. But where sales are taxed, but gasoline is exempted, other goods are implicitly taxed more so gasoline can be explicitly taxed less.

In short, the general principal is that gasoline cannot be simultaneously be taxed with the funds dedicated to highways (thus acting as a user fee) and exempted from sales taxes without there being a subsidy that at least partially offsets the user fee.

At a $3.00/gallon price of gas, a 6.875% tax raises $0.20625 per gallon. To compare, the state gas tax is $0.286 per gallon. Thus, in Minnesota the net state user fee is only about $0.08 per gallon, not the $0.286 per gallon widely advertised.

We could similarly look at the motor vehicle sales tax (MVST), which is dedicated to transportation in Minnesota. It is 6.5%. Nothing wrong with dedicating the funds, but as a result, they cannot be counted as user fees, since sales tax revenue would otherwise go to general revenue.

Elsewhere on the Network today: The Black Urbanist describes what it’s like to be stuck in a totally car-dependent suburb for socioeconomic reasons. Mobilizing the Region says, with the election behind us, now is the time to address New Jersey’s impending transportation funding crisis. And Bill Lindeke at Twin City Sidewalks shares a personal story of biking misery.

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