Congressionally-created Commission Recommends Mileage Tax Instead of Fuel Tax for Transportation Infrastructure Financing
|Average annual capital needs and gap estimates, all levels of government, 2008-35 (in 2008 dollars). Click to enlarge.|
A bi-partisan Congressionally-created commission has recommended a shift from motor fuel taxes to direct fees charged to transportation infrastructure users—i.e., a federal mileage fee—as a way to reform financing of the US transportation infrastructure.
The recommendation is part of the final report issued by the National Surface Transportation Infrastructure Financing Commission, “Paying Our Way: A New Framework for Transportation Finance”. The commissioners noted that “while no first draft of a major reform is perfect”, they were unanimously offering the report as a road map for the transition to a new funding and finance framework.
The nation faces a crisis. Our surface transportation system has deteriorated to such a degree that our safety, economic competitiveness, and quality of life are at risk.—“Paying our Way”
From 1980 to 2006, the total number of miles traveled (VMT) by automobiles increased 97%; truck VMT increased 106%. Over the same period, the total number of highway lane miles grew a scant 4.4%. More than half of the miles that Americans travel on the federal-aid highway system are on roads that are in less than good condition, more than one-quarter of the nation’s bridges are structurally deficient or functionally obsolete, and roughly one-quarter of the nation’s bus and rail assets are in marginal or poor condition, according to the report.
Real highway spending per mile traveled has fallen by nearly 50% since the federal Highway Trust Fund (HTF) was established in the late 1950s. Total combined highway and transit spending as a share of gross domestic product (GDP) has fallen by about 25% in the same period to 1.5% of GDP today.
An ever-expanding backlog of investment needs is the price of our failure to maintain funding levels—and the cost of these investments grows as we delay. Without changes to current policy, it is estimated that revenues raised by all levels of government for capital investment will total only about one-third of the roughly $200 billion necessary each year to maintain and improve the nation’s highways and transit systems.
...The problem, however, is not simply insufficient investment. Our system is underpriced. Basic economic theory tells us that when something valuable—in this case roadway space—is provided for less than its true cost, demand increases and shortages result. Shortages in our road system are manifested as congestion. All too often the prices paid by transportation system users are markedly less than the costs of providing the transportation services they use (including pavement repair)—much less the total social costs (including traffic congestion and pollution). This underpayment contributes to less efficient use of the system, increased pavement damage, capacity shortages, and congestion.
In addition to a federal mileage-based charge, the Financing Commission calls for the federal government to facilitate state and local governments’ ability to raise their share of needed revenues in ways that also spur efficient use of the system and stepped-up investment, including through tolling portions of roads and charging premiums for rush-hour travel in heavily used urban corridors (congestion pricing). More transparent charges for using infrastructure may also spur drivers to use the system more efficiently, reducing the overall investment need.
|Summary of revenue options. Click to enlarge.|
In order to support the transition from the gas tax to a mileage-based charge, the Financing Commission recommends a ten cent per gallon increase in the federal gas tax (15 cents for diesel) and indexing the tax to inflation going forward. The gas tax, which is not currently indexed to inflation, has lost 1/3 of its purchasing power since 1993, the last time the tax was increased.
Although the Commission recommends moving away from a fuel tax, it also noted that a portion of revenues derived from a carbon tax on fuels should be allocated to the highway fund.
To the extent, however, that surface transportation fuels are subject to a charge in the future to account for their carbon emissions (e.g., a carbon tax or priced through carbon trading), an appropriate portion of those proceeds should be credited to the HTF and dedicated to funding carbon-reducing transportation strategies.
Other recommendations of the report include:
Commence the transition to a new, more direct user charge system as soon as possible and commit to deploying a comprehensive system by 2020. Because of the complexity inherent in transitioning to a new revenue system and the urgency of the need, the Commission recommends that Congress embark immediately on an aggressive research, development, and demonstration (RD&D) program.
Ensure that, once implemented, mileage-based fees and any other charges are set to meet the designated federal share of national surface transportation investment needs, and index these rates to inflation. Simply shifting from one revenue system to another will not solve the underinvestment problem if rates are not set at sufficient levels and maintained over time to meet the needs.
As the new mileage-based fee system is put in place, reduce and ultimately eliminate current fuel and other vehicle-related charges as the primary mechanism for funding the surface transportation system, recognizing that the fuel tax may play a role in meeting other important national policy objectives.
Establish VMT technology standards and require original equipment vehicle manufacturers to install standardized technology by a date certain that will accommodate the desired 2020 comprehensive implementation.
Initiate an extensive public outreach effort to create a broad understanding of the current funding problem, the proposed solution, the intended method of implementation, and the anticipated impact on individual system users.
Such a move to a mileage tax does not currently have the support of the White House. Responding to earlier comments by Secretary of Transportation Ray LaHood on examining a mileage tax, White House Press Secretary Robert Gibbs said “that [a mileage tax] is not and will not be the policy of the Obama administration.”