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Subsidized driving

This post is by Phil.

This DC Streets Blog post gives a concise summary of a report by “The Tax Foundation”. The money shot is here, a table that shows what fraction spending on roads in each state in the U.S. is covered by local, state, and federal gas taxes, tolls, registration fees, etc. (Click on the ‘rank’ table heading to put it in useful order). The national average is 51%, and in no state do drivers directly pay more than 80% of the cost of the roads and highways. That means that, nationwide, half the cost of the roads is paid out of general government funds. Even if it were 100% this still wouldn’t cover additional government costs of driving (such as military spending to protect the oil supply, and law enforcement costs, etc.) but I’ll ignore those in this post.

Of course, most of the general funds that make up the difference are themselves paid by people who drive, so this isn’t as grossly unfair as it seems. But it’s still pretty unfair, and it is a huge “market distortion”.

As a crude approximation, what if all gas taxes, tolls, and registration fees were doubled. All other things being equal, drivers would then be paying the cost of the roads. Except all other things wouldn’t be equal: there would be a stronger incentive to shift to more efficient cars and to drive less, which would reduce the gas tax revenue. So the first-order effect suggests you would have to _more_ than double the taxes and fees in order to have the drivers pay for the roads.

But with people driving less, and driving lighter cars, the roads wouldn’t degrade as quickly, so the repair costs would be lower. And with fewer and smaller cars on the road there would be fewer road expansion projects, and fewer lanes of roadway to maintain. So the second-order effect would be in the direction of needing less money. Perhaps simply doubling all of the fees and taxes would be enough after all.

Are there any good arguments for charging drivers much less than the cost of the roads? Actually, let me refine that question: I’m sure there are good _political_ arguments that explain why politicians haven’t made this happen, but are there any good environmental, social, or economic arguments?

This post is by Phil.

28 Comments

  1. Zach says:

    Lots of driving benefits non-drivers too. I benefit from people driving to work (to the extent that I’d be harmed by the economic impact of everyone only working at places they could reach easily by public transportation) and trucks delivering things close to me.

  2. Manoel Galdino says:

    “Who is this Phil Guy?” I remember someone asked something like this a few years(?) ago and found quite funny. But actually, you should post more, Phil. I don’t remember a post of you that I didn’t like. You increase the quality of the blog and also add some diversity to the themes of the blog (not that I’m unhappy with most of the posts). So, keep posting here and, if possible, more frequently.

  3. David King says:

    Reports like the one the Tax Foundation published generally make the road subsidy sound a lot larger than it really is. Most state and local spending on roads is paid for through property taxes, not gas taxes, and increasingly through sales taxes. On property taxes, since roads provide access the value of property is strongly tied to transport connections and is justifiable on economic and social grounds, and shouldn’t be considered an undeserved subsidy. Mark Delucchi at UC Davis (http://www.its.ucdavis.edu/?faculty=delucchi-mark-2) has done excellent work on the full cost of transportation and identified where the subsidies really exist. Parking, unsurprisingly, is the single largest subsidy to drivers, and the overall level of subsidy depends quite a bit on property taxes. Here are two of his papers worth reading:
    http://www.its.ucdavis.edu/?page_id=10063&pub_id=1170

    and

    http://www.its.ucdavis.edu/?page_id=10063&pub_id=1139

    • Phil says:

      David, thanks, that’s interesting. I’ve only skimmed the second one, which talks about several complexities, so I encourage interested blog readers to go ahead and read it. I hope it’s OK to quote the entire conclusions section:

      Our [Delucchi's] analysis indicates that in the US, current (ca. 2005) tax and fee payments to the government by motorvehicle users may fall short of present government expenditures related to motor-vehicle use by approximately 20–70 cents per gallon of all motor fuel. (By contrast, as summarized in Section 1.3.2, in Europe user payments easily exceed government expenditures (Link, 2005)). As we have emphasized above, while this significant shortfall certainly is pertinent to discussions of the equity of transportation financing, and even to concerns about balancing the budget of the government highway enterprise, it is not necessarily the amount of motor-fuel-tax increase that would ensure the most efficient provision and use of government motor-vehicle-related infrastructure and services. Nevertheless, a 20–70 cent per gallon shortfall is large, especially compared with current state and federal fuel taxes in the US (averaging about 38 cents per gallon total federal + state in 2003 [www.fhwa.dot.gov/policy/ohim/hs03/htm/mf121t.htm]). If the upper end of this 20–70 cent-per-gallon range were added to the price of motor fuel, it likely would have a noticeable effect on fuel consumption and motor-vehicle use. (Moreover, as noted above, an initial increase in the motor-fuel tax likely would reduce the quantity of motor-fuel demanded and thereby necessitate a further tax increase to compensate for the reduced volume of fuel subject to the tax.) Furthermore, our estimate here is only of the difference between user tax and fee payments to government and actual government monetary outlays for motor-vehicle infrastructure and services; it does not include the cents-per-gallon-value of any non-monetary environmental or oil-use externalities such as global warming or the macroeconomic costs of oil disruptions. Incorporation of these and other external costs could further raise the price of fuel by on the order of a $1 per gallon of motor fuel (Parry and Small, 2005; Delucchi, 2000; Delucchi, 1997). We may conclude, then, that motor-vehicle users in the US – unlike users in most European countries – do not ‘‘pay their way’’.”

  4. Stu says:

    Bloomberg just had a related article advocating eliminating the federal gas tax because there are more efficient ways to fund, plan and build infrastructure – and could potentially also be greener:
    http://www.bloomberg.com/news/2013-01-23/drop-the-federal-gas-tax-and-build-better-roads.html

  5. Lord says:

    I am not sure 2010 is such a representative year as it includes deferred projects and stimulus spending and also combines construction that should be amortized with repair. It would be interesting to see these over time since inflation and increased efficiency has likely diminished taxes that would have higher.

  6. Taylor says:

    “Are there any good arguments for charging drivers much less than the cost of the roads?”


    “Drivers” do not accrue the majority of economic benefits from roads & highways — the general population does.

    Think general transportation and logistics within society, rather than John Doe driving his Chevy to work each day.

    95% of everything we physically consume in American society gets to us via roads/highways. Food, clothes, furniture, building materials for homes/offices, PC’s, soap, medications, gasoline, etc. — are all trucked to you (or nearby retail outlets) on roads within a vast transportation network. You are almost totally dependent on that road infrastructure for your daily life. How do think all that stuff gets on your supermarket & shopping mall shelves ? And road infrastructure provides many other tangible economic benefits to the general population.

    Everybody is a big ‘user’ of roads/highways — actual vehicle drivers are merely the highly visible minority of ‘users’.

    • Phil says:

      Taylor, if the users of the roads had to pay for the roads then the costs of the roads would be factored into the cost of the products, as they should be. Someone who buys a lot of stuff that is shipped a long way by road should pay more than someone who doesn’t. The fact that roads help everyone is beside the point.

      Here, try it this way: Steel is really important in American society. Just about every big building has some steel in it, our cars have steel in them, appliances are made with steel. Ships are made out of steel, and so are trucks and trains…we are almost totally dependent on steel for our daily lives. Therefore we should have a steel subsidy. Apply the same logic and we should have subsidies for lots of stuff.

      By the way, I recognize that there are arguments for charging drivers _somewhat_ less than the costs of the roads. For example, some people don’t drive but they bike on the roads. And even someone who neither rides nor bikes benefits from the ability for emergency vehicles to get to their home. (There are also arguments for charging drivers _more_ than the cost of the roads: there are externalities like air pollution and health impacts of driving).

  7. zbicyclist says:

    As a habitual bicyclist, I often hear the argument that cyclists don’t pay for roads. The notion that gas taxes and license fees are sufficient to pay for roads is a very, very common misconception among the public.

    It is relatively rare for taxes and benefits to be connected in an entirely meaningful way, particularly over time. School taxes are another obvious example. Taxes are earmarked for schools, but paid by everyone. Even sewer fees — certainly the prevalence of sewers were of value to me in the prevention of disease epidemics, even while I was in a little pocket of people who still had septic tanks and were not paying sewer fees.

  8. Amtrak is Evil says:

    I am all for higher road taxes. I am all for better infrastructure, and, specially, better and faster trains. But I cannot stand Amtrak, its lousy service, and despondent employees. So if the implicit message here is (a) tax drivers so (b) we can have more trains, pls ensure (c) unions don’t keep all the difference.

    From http://www.city-journal.org/2012/22_4_snd-amtrak.html :

    A recent Capitol Hill hearing offered grounds for suspicion that the railroad’s 20,000 employees—who average $90,000 a year in pay and benefits—have cousins in high places. It came out in the hearing that Amtrak loses more than $80 million a year on food services. That comes to about $68,000 for each of the 1,200 people who work for Amtrak’s food and beverage division. A cheeseburger that sells for $9.50 in an Amtrak café car costs the railroad $16.15.

    So an average hot-dog vendor from the street outside Penn Station could lease an Amtrak café car, turn a profit for himself and the railroad, and reduce food prices for passengers. Is there even a slight chance that such a thing could happen? Not according to what one heard at the hearing. “Why are some members of Congress promoting the elimination of good middle-class jobs with decent pay and benefits?” demanded Dwayne Bateman, vice general chairman of the union that represents train service workers. Nick Rahall, the ranking Democrat on the House’s Committee on Transportation and Infrastructure, agreed. “It’s a whopper of an idea, trading good-paying jobs for cheaper hamburgers,” Rahall said.

    American taxpayers owe Bateman and Rahall a vote of thanks for shedding light on the perverse incentives that make Amtrak such a mixed experience. For passengers, a café car means cheeseburgers. For café-car employees—and many legislators—it means pork. For passengers, late trains mean time lost. For train crews, they mean overtime gained. Bottom line: Amtrak is a jobs program on wheels.

  9. Rahul says:

    I’m not so sold on the argument of each one paying for what he uses. It’d be mighty hard to directly bill citizens for itemized services used.

    e.g. Why should people without kids be paying for schools through property-taxes?

    The list could go on. So long as utility is fairly broad (and I think driving is) it should be ok to pay for it out of the common tax pool.

    • Anonymous says:

      @ Rahul

      I disagree to some extent. I’m ok paying school for disadvantaged kids (eg low income, means based).

      I don’t see why I have to pay school for 4 kids of a middle class family.

      Where I live private school is some $20k a year. In middle class areas, public schools are decent. So these people are getting an implicit transfer of $80k a year.

      If they are earning $80, paying some property tax ans 10% in local income tax. Their net benefit is still thousands of dollars simply bc the planned to have many kids, or don’t believe in contraception, or they are careless.

      I don’t care, I care I have to foot their bill.

      • Rahul says:

        What about government subsidies of research? Why should I care about ovarian cancer research when I don’t have ovaries? Or AIDS research if I am going to be appropriately monogamous? Why subsidized student loans if I’m dropping out after high school? If I’m not an outdoors guy why parks?

        Or even Statistics research; is there a strong argument for Government funding for that? Etc.

        The logical end might be an ultra libertarian utopia where all the Government funds is militaries, police and the Law.

        • Phil says:

          Rahul, I think you’re misinterpreting my question, “Are there any good arguments for charging drivers much less than the cost of the roads?” to be a rhetorical one. In fact it is a genuine question. If there are any good arguments (I’m not aware of any) then I would like to hear them.

          It’s true that when I say I’m not aware of any good arguments for subsidizing driving (or, rather, for heavily subsidizing driving) I am implicitly criticizing the idea of it, while admitting that I may simply be uninformed. But I think you are misinterpreting my criticism of subsidized _driving_ as a criticism of subsidized _anything_. I don’t have a problem with all subsidies; I just think that not everything should be subsidized. I’m sure you agree. So why are roads in the “should be heavily subsidized” category and not the “should not be heavily subsidized” category?

          Here’s an argument for why it shouldn’t:
          One of the problems with subsidized roads (and thereby subsidized driving) is that it leads to outcomes that are negative for society as a whole: more air pollution, more total spending on roads, more traffic fatalities, and so on.

          To contrast that with one of your examples, I don’t think that’s true of medical research: I don’t think people get more ovarian cancer because cancer research is subsidized. It surely is true of college education: more people go to college than would if there weren’t government aid. But unlike air pollution and traffic fatalities, a more highly-educated populace is good for society, or at least arguably so.

          Also, there’s a humanitarian case for medical research or for college loan guarantees. Call it a charitable case, if you like. Many of us, and I include myself in this, are happy to have some of our tax money used to help extend lives or to help people go to college. But why should I pay so somebody else can drive, who wouldn’t otherwise do so? I could maybe see some kind of fund to help poor people pay for gas or something — we have that for utility bills and phones, maybe it should work for cars too — but the current system doesn’t just help poor people, it helps all drivers. People who don’t use the roads very much are paying for people who use them a lot.

          • Rahul says:

            I agree that this is the key question: “So why are roads in the “should be heavily subsidized” category and not the “should not be heavily subsidized” category?”

            I think your flaw lies in assuming that “roads lead to outcomes that are negative for society.” I think that’s not true at all. You are seeing only the obvious costs (pollution, fatalities etc.) but taking the ubiquitous, unglamorous benefits for granted. Surely, you aren’t arguing for a nation without roads? Ok, so let’s assume you are saying that the optimal size of a road network is lower than what we have currently? Maybe, but this isn’t “obvious” to me. Yes, we get lower fatalities and pollution but what about the longer delivery times, difficulties of trade, hindered movement of people etc.?

            Note this is separate from the billing problem. Analogous to your “People who don’t use the roads very much are paying for people who use them a lot.” why couldn’t one say “Men, who don’t get ovarian cancer very much, are paying for women who get it a lot”.

            It is an exaggeration, but the same idea: The transaction costs of billing each person exactly for the resources he uses is inefficiently expensive.

          • Phil says:

            Rahul, I can’t reply to your comment below (too many levels of nesting I guess) so I’ll reply to it here.

            Of course there are societal benefits of roads and driving. There are societal benefits of mobile phones too, but we don’t subsidize mobile phones (except for the poor).

            If you want to argue that if we didn’t heavily subsidize driving the societal outcome would be bad, please do so! This is what I’m asking for! I’d love to hear a good argument in favor of subsidized driving.

            It’s worth pointing out that in Europe driving is not heavily subsidized. Europe has their problems but I haven’t heard long delivery times or “difficulties of trade” due to insufficient roadways being listed among them. But I’m no expert.

            As for the medical subsidies discussion, which is beginning to seem a bit off-topic: If the only subsidized medical research were of women’s ailments, I would object. But the government subsidizes research on ovarian cancer and on prostate cancer. Also, I think there’s a humanitarian case for working on diseases, so I (and I think most people) don’t mind if some of our money is used to help people subject to severe misfortune. I do mind if my money is taken to help someone with an enormous SUV pay for his driving.

          • Rahul says:

            @Phil

            Sorry, I don’t have a good quantitative argument; that needs a cost-benefit analysis and anything else is mostly hand waving.

            OTOH, don’t single out roads: transportation as a whole is a highly subsidized sector. e.g. In 2010, state and local governments spent $60 billion on mass transit yet raising only $13 billion in mass transit fares. i.e. 75% subsidy.

            I’m not so sure about the validity of your US-EU comparison either: In 2010 the USA state and local government subsidy to highway construction is ~$100 billion. The total EU-15 subsidy to roads was EUR 125 billion (year 2007 figures). What gives? Where’s the un-subsidized EU role model?

            Finally, even if EU had looked good on road subsidies they make that up in rail subsidies: EUR 113 billion per year in subsidies plus rail PSO-handuts.

            Data Sources:
            (USA) The Tax Foundation quoted by Phil
            (EU-15) http://www.eea.europa.eu/publications/technical_report_2007_3

          • Wayne says:

            Phil,

            To me, roads are a basic part of the infrastructure of a modern society. Something like the postal service was at one time. (And may or may not be still.) In limited cases, the internet or air travel might replace it, but not in general.

            Seems to me that a 100%-paid-for road system would face at least the recent issues of the postal service. For example, would we let rural roads revert to dirt since there aren’t enough people to pay for them? Or would you still have subsidies, just of a different kind? (I.e. city drivers paying for rural roads they never use.) How would it affect food prices, since all farming transport (food and equipment) is road-based? What would be the effect of increased road costs on non-urban factories?

            I seriously doubt that a more expensive system would be good for mass-transit or that (road-based) mass-transit would be good for the infrastructure. I believe that road damage is exponential based on the vehicle weight, so taking 100 commuters out of their cars and placing them into busses would probably damage the roads more rather than less. (I’m thinking not only of the weight of each bus, but the fact that they would run on a schedule that would result in them being under-full most of the time.) Not to mention that many of our mass-transit systems are overloaded already.

            You also over-emphasize the negatives of driving. I went to school 8 hours from my parents’ house. I co-op’d 13 hours away. By the time I graduated from High School, my family had traveled to all 48 states, Mexico, and Canada. Once I graduated, I was able to get a job and live with my parents at first, then move to my own place, not having to worry about having to change jobs simply because I changed residences. Not to mention that I was able to get a job that matched my skills without worrying about how I’d live next door to my employer. All of this, by car. In my opinion, it’s a key part of why the US has a flexible and mobile society and why we view ourselves as one country rather than a scattered assortment of regions.

            On a side note, you hold up subsidized college as a positive example, and I’d paint the other side of that picture as well. It seems to me that a majority of undergraduate students in the US learn less in four years than they would in a one-year apprenticeship. It’s gotten to the point that if you want to prove that you actually care about the technical side of your education, you get a Master’s degree: the Master’s is the new B.S. Subsidized education is a good concept in general, but subsidized B.S. degrees in the current system is way less efficient and beneficial to society than subsidized roads.

          • Phil says:

            Rahul and Wayne, I can’t figure out how you are able to post below rather than above the parent post at this level of nesting. So this is out of order on the page, sorry.

            Rahul, you cite a source that says the EU, too, heavily subsidizes roads. But the second Delucchi paper mentioned earlier in this comment stream says “These results show that payments exceed government expenditures – usually by a wide margin – in every European country except Hungary, and that payments even exceed total social costs in more than half of the countries.” There’s a table and discussion on p. 985. I know nothing about this subject myself — except that I know Europe has much higher gas taxes than we do, so I guess I know something — so I don’t know how to reconcile your source with mine.

            Wayne, you say “For example, would we let rural roads revert to dirt since there aren’t enough people to pay for them? Or would you still have subsidies, just of a different kind? (I.e. city drivers paying for rural roads they never use.) How would it affect food prices, since all farming transport (food and equipment) is road-based? What would be the effect of increased road costs on non-urban factories?”

            My answer is: I don’t know, but it’s not obvious to me that it is efficient or fair for rural roads to be as highly subsidized as they are. This is a bit of a digression but I’ll say it anyway: I get around (in Berkeley and Oakland) largely by bike, so pavement condition is very important to me, and I sometimes am a bit pissed off at how poor the roads in the cities are. I also do long-distance road biking, and both appreciate and marvel at the incredibly good pavement that stretches for miles and miles. My money is being used to pave your roads instead of mine. (Of course, I’m glad of this on those long-distance rides…I am one of the unusual people who uses both “your” roads and “my” roads. But it seems unfair). There is actually a common assertion/belief/meme that government policies are tilted towards city-dwellers but in fact the annual transfer of wealth from cities TO rural areas is enormous, stupefying, unbelievable. Whether that’s a good thing is a different question.

            Getting back to your (Wayne’s) comments/questions: as you suggest, the question of how heavily driving as a whole should be subsidized is different from the question of whether it should be directed to rural versus urban roads. We could keep the rural:urban expenditure ratio the same and still decrease the overall subsidy.

            It’s interesting that both of you (Rahul and Wayne) seem to focus on the extent to which services would be reduced if the subsidy were reduced. I think you overdo it. I’m not talking about a huge cut in the SPENDING on roads, I’m talking about a huge cut in the SUBSIDY for roads. I think if gas taxes and registration fees were a lot higher, people would drive cars like the ones in Europe instead of the SUVs that are ubiquitous here. More goods would be shipped by rail and less by truck. I think we’d still have paved roads all over the place, and congestion wouldn’t be any worse than it is now, on average. And I think people who drive a lot would spend a very slightly higher fraction of their income on driving, and people who don’t drive a lot would be taxed very slightly less. I think greenhouse gas emissions and air pollution would be slightly lower.

          • Phil says:

            I retract the “nesting” portion of my comment: when writing the comment it looks like it’s going in the wrong place, but when it appears on the blog it’s all fine.

          • Rahul says:

            @Phil:

            Another relevant statistic is that 95% of American households own a car. So on a car ownership basis it’s hard to see who’s subsidizing whom. Ergo is it worth the effort to try and figure out who should pay how much?

            You keep bringing up SUV’s; but on a road wear-n-tear basis I’m skeptical SUV’s do any substantially more damage than other cars. Gas consumption, pollution etc. yes, but I don’t think the US subsidies gas.

            Your point about “More goods would be shipped by rail and less by truck” is also ironic if you compare it to the EU example: 11% of EU-15 freight goes via rail; yet rail takes 7% of their total transportation subsidy.

            It isn’t clear to me at all that a more-freight-goes-by-rail economy is any less subsidized than our current status quo.

          • Phil says:

            Rahul, I don’t know if you’re getting what you want out of this conversation. I know I’m not. I was hoping to hear an argument for why roads should be heavily subsidized. You say Europe’s not so hot, you say most Americans own cars, you say the government pays for medical research, you say rail is even more heavily subsidized. Perhaps next you can tell me what kind of cheese is your favorite. I agree with some things you say and I disagree with others…but I really was hoping to hear why roads should be heavily subsidized! I haven’t seen a good argument for such a subsidy. I’d be interested in hearing one if you have one!

            As for the idea that since almost everybody owns a car it doesn’t matter if the cost of the roads comes out of the common tax pool, I disagree and I mention this in my original post and in an earlier comment.

          • Rahul says:

            @Phil

            I was hoping I’d convince you that your “let’s double all road taxes” idea wasn’t very good, but yes in hindsight I haven’t succeeded much, unfortunately. Well, looking at the comments, at least I wasn’t alone in questioning your premise, so maybe one of the other commentators will have better success in addressing what you think is the crux of the argument.

            If my remarks were as irrelevant to the argument as your “cheese” reference indicates, I’m sorry.

          • Anonymous says:

            A comparison with an European country like Denmark is difficult, I think. We don’t pay any tolls for drving on roads (except for one big bridge, which is going to be payed 100% by users), but we do pay a lot of taxes on gas and cars (180% on cars I think). But, is this money a subsidy to roads (to pay for building and mantaining roads), or the environment (less cars on the road) or rails (more people will use trains) or? It’s not that easy to decide where the money actually goes.

          • Phil says:

            Rahul, the “cheese” thing was a joke, as I hope was obvious.

            Everything you say was related to the issue of subsidies, so not irrelevant. But also not quite on point, or perhaps I’m missing the point. I was too harsh in the way I said that, sorry.

            Maybe I made a mistake by phrasing my initial question the way I did, since it seems to put pro-subsidy people on the defensive. Let me try it this way: what is the right fraction of road costs that should be paid out of general funds rather than gas taxes, tolls, registration charges, and other de facto user fees? It seems unlikely that we live in the best of all possible worlds, with the perfect level of subsidy. Should roads be subsidized more, less, or about the same that they are now? I think the “subsidize them less” arguments are pretty obvious and I’ve made or touched on a few of them. I feel like I still haven’t seen a “subsidize them about the same” argument or a “subsidize them more” argument.

            If you or anyone else would like to drop this whole subject, I’m fine with that, you don’t owe me an answer!

  10. Rahul says:

    Opps. In my comment above I meant to write 27% not 7%.

    “11% of EU-15 freight goes via rail; yet rail takes ____27%____ of their total transportation subsidy.”