New Taxes for New Highways?

Although conservative activists across the country gather today to throw "Tax Day Tea Parties," their anti-government zeitgeist is badly out of favor in Washington. President Obama and the Democratic majority in Congress have committed to increased discretionary spending on a variety of programs in the years to come and, coupled with their pledge not to repeat the Bush administration and congressional Republicans' budget-busting ways, they are going to be looking for new sources of revenue to keep the deficit down.

Highway and mass transit infrastructure spending got a lot of attention in the stimulus package -- President Obama just cut the ribbon on the 2,000th transportation project made possible by the stimulus funds -- and it will be getting a lot more with the Surface Transit Re-authorization bill due this year. While all Democrats and even some Republicans agree that highways and railroads need to be built and maintained for the economy to thrive, it seems that some Democrats, and even some administration officials, disagree about how we should pay for it.

Transportation Secretary Ray LaHood recently raised a kerfuffle when he suggested that the federal government should start paying for transportation infrastructure by taxing drivers for every vehicle mile traveled (VMT), rather than with the current 18.4 cent per gallon tax on gasoline. The White House quickly distanced itself from LaHood's remarks, saying that the president does not support such a move. And rightfully so. Taxing drivers for the amount they drive is both more difficult and less environmentally beneficial than taxing gasoline. To do it, you have to put mileage-calculating GPS devices in people's cars, which raises privacy concerns.

Also, taxing VMT means making no distinction between a mile traveled in a Prius and a mile traveled in a Hummer, even though bigger cars cause considerably more road damage. And anyway, if you are concerned about global warming you should be encouraging people to switch to more efficient cars, and one way to do so is by taxing gasoline. It is pollution, not traveling per se, that we should tax. Moving goods and services is not a bad thing, especially during a recession. Pollution, on the other hand, always is a bad thing.

The flimsy counter-argument is that VMT is a measure of wear and tear on the roads, so the people who do the most damage should pay the most for repairs. But VMT does not take into account the fact that heavier vehicles, such as trucks, which also tend to burn more fuel, do more road damage by virtue of their size and weight. So a gas tax may be as good a proxy for road-usage. You could partially correct this by creating different taxes for different weight classes of cars, but that would make the VMT even more difficult to implement.

LaHood is not the only politician with power over transportation policy who has raised the possibility of a VMT tax. Rep. Jim Oberstar (D-MN), who chairs the House Transportation and Infrastructure committee, dispatched a staffer to the recent Revitalizing Older Cities conference to say, among other things, that Oberstar supports moving to a VMT tax in the Surface Transit bill, which he will have a major hand in writing. Why is this odd idea catching on?

Because it solves a major problem with our transportation policy, which is that the federal funding for constructing highways and mass transit lines currently comes from the gasoline tax. The problem with the gasoline tax is that raising it is politically unpopular and it has not been done since 1993. Due to inflation that amounts to a de facto gas tax cut, and the resulting loss in revenue has left our transportation infrastructure severely under-funded. Also, if we successfully raise fuel efficiency standards and move people towards using mass transit, and thereby consume less oil, we will see a further drop in revenue. In short, a successful gasoline tax is on a collision course with itself.

But the VMT is not the right solution. So what is? Well, first of all, the hand-wringing over the gas tax's unsustainability is a bit overwrought. If you raised gas taxes to, say, 35 cents per gallon, and then pegged it to inflation going forward, you would have plenty of revenue for building a respectable mass transit infrastructure and maintaining our already extensive highway system for at least the six-year duration of the Surface Transit legislation. The way America's communities are currently constructed, and with the auto fleet it currently has, gasoline use will not drop enough to make this revenue stream too small for quite a while.

Obama stated on Meet the Press in December that he opposes an increase in the gas tax due to the recession. Considering that average gas prices were $4.11 per gallon in July, it is hard to see how a gas tax that would raise them from $2.05 per gallon, which was the average price as April 13, to $2.23 per gallon would really be that extraordinary of a burden. A year ago gas was $1.34 more than it is today and the world was not coming to an end. Arguably now, when prices are low due to soft demand, is the best time to get it through. (Imagine trying to pass a gas tax last summer when Republicans were demanding a gas tax holiday.)

When asked to clarify how Obama intends to raise revenue for transportation without raising the gas tax, or why he even considers it so onerous to simply raise the tax to the same inflation-adjusted level it was in 1993, Obama spokesman Nick Shapiro completely dodged. "The President is not proposing an increase in motor vehicle fuel taxes, something that would be especially unwelcome at a time when American families are hurting in the most serious economic crisis of our lifetimes," Shapiro wrote in an email.

No one is discussing a gasoline tax that would raise prices at the pump to anywhere near what Americans were paying last July, so it's unclear why the President thinks a few extra cents would be such an undue burden. It is also unclear how we will shift towards sustainably funding transportation, even in years ahead when the Democrats may not control the government, without a pre-established revenue stream. Oberstar and other congressional leaders on transportation such as Rep. Jerrold Nadler (D-NY) support creating a national infrastructure fund. That's a good idea that could, over time, replace the gas tax. But there is no need to run off in a silly direction in the meantime.