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.

ALSO ON STREETSBLOG

Actually, Highway Builders, Roads Don’t Pay For Themselves

|
You’ve heard it a thousand times from the highway lobby: Roads pay for themselves through “user fees” — a.k.a. gas taxes and tolls — whereas transit is a drain on the taxpayer. They use this argument to push for new roads, instead of transit, as fiscally prudent investments. The myth of the self-financed road meets […]

Drivers Cover Just 51 Percent of U.S. Road Spending

|
There’s a persistent misconception in American culture that transit is a big drain on public coffers while roads conveniently and totally pay for themselves through the magic of gas taxes. And that used to be true — at least for interstate highways, a fraction of the total road network. But that was many, many failed […]

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 […]

Transit’s Not Bleeding the Taxpayer Dry — Roads Are

|
We’ve said it before and we’ll say it again: Roads don’t pay for themselves. But maybe they should. “Taxpayers cover costs that should be borne by road users,” asserts the State Smart Transportation Initiative at the University of Wisconsin-Madison. “Road subsidies push up tax rates, squeeze government services, and skew the market for transportation.” SSTI, […]

It’s Time to Stop Pretending That Roads Pay for Themselves

|
If nothing else, the current round of federal transportation legislating should end the myth that highways are a uniquely self-sufficient form of infrastructure paid for by “user fees,” a.k.a. gas taxes and tolls. With all the general tax revenue that goes toward roads in America, car infrastructure has benefited from hefty subsidies for many years. […]