An Answer to Highway Funding
With the deadline for passing the highway bill just around the corner, regulators and legislators are on the hunt for new methods of raising highway maintenance and repair funding. Tolling and per-mile taxes have been discussed, but the administrative costs of tolling and the fraud potential of a per-mile tax far exceed that of current funding mechanisms. Raising the excise tax on new trucks has also been suggested.
Pay by the mile…
The fuel tax system is, by extension, already per-mile based, because fuel consumption is directly linked to miles driven. Given the relative fuel efficiency difference between a small car and a large truck, not to mention the difference in tire excise tax charges, the current system even factors in the relative weight of the vehicle.
The only thing that a per-mile tax accomplishes, that isn’t already built into the current fuel and excise tax system, is the establishment of another large bureaucracy.
…or by toll?
While there are a limited number of scenarios where tolling is the most appropriate option (certain bridges and tunnels, routes that only benefit non-local traffic, international crossings), many calls for toll roads are made to address ineffective highway management, not shortcomings of the fuel/excise tax system.
Research up through the late 90s consistently showed that fuel/excise tax systems were far more efficient than tolling in otherwise equal scenarios. “More efficient” means that more of every dollar collected was available for road maintenance and repair because the tax collection process was less costly than the tolls.
Is automation the answer?
Recently, The Reason Foundation, a libertarian free-market think tank, completed a study that argues for exclusive, 100% electronic toll collection, which they designate as all-electronic tolling (AET). AET would be cost competitive with the current tax system and more efficient than taxes once opportunity costs are factored in.
While the study makes a good case for the potential of AET to beat the current tax system, it doesn’t seem to offer a road map of how we get from here to there, nor does it suggest how long that trip might take. Until such time as a viable plan for AET is on the table, it’s important to remember that the current funding system is basically sound.
One of the few problems with today’s funding system is that the federal fuel tax is factored as a flat amount per gallon, currently $0.244/gallon for diesel. Fuel consumption is directly tied to road usage, so as usage goes up, so do revenues.
However, that per gallon flat amount tax has not increased in 20 years, during a period when inflation has increased dramatically. This means each highway funding dollar buys much less than it did when the tax was last adjusted in 1993.
A smaller but still significant problem is that fuel efficiency for every type of vehicle has increased in the past 20 years, enabling more miles of road use for each gallon of fuel purchased. Even in constant dollar terms, highway users are paying less fuel tax per mile than they did in 1993. Add inflation on top of lower revenue per mile of travel, and a funding shortfall is the inevitable result.
The answer – logic. What a concept!
The logical and simple answer is to change the tax from a flat amount per gallon to a percentage of the base price of the fuel, just like sales taxes. The percentage would be set to meet current funding needs, and as inflation affects the base price of the fuel, highway funding revenues would move in lockstep with inflation.
Eco-dreams notwithstanding, over the next 20 years we’re not very likely to match the fuel economy gains of the past 20 years. A repeat of the drop in tax revenue per mile of travel is just as unlikely. To cover this unlikely possibility, the fuel tax percentage could be indexed to average fuel economy, updated every 5-10 years.
Read my lips; no new bureaucrats!
In just two small steps, requiring only the swap of a flat price for a percentage in fuel dispensers and on fuel tax forms, the decades-old highway funding problem can be resolved. Better still, the problem can be resolved without adding billions in automatic tolling infrastructure or creating another politically driven bureaucracy to administer a per-mile tax.