End Gas Tax? Yes! Pay for Roads with Sales Tax? No!

Virginia Governor Bob McDonnell wants his state to be the first to end the gas tax. The Antiplanner supports that idea because gas taxes are an imperfect user fee.

However, McDonnell proposes to replace the gas tax with a 0.8-cent sales tax that he says will generate more revenue than the gas tax. If your only goal is to make government bigger, then generating revenue is a good idea. However, if your goal is to have better roads, then even a gas tax makes more sense than a sales tax.

The key to the success of the free market is feedback. As imperfect as the gas tax is, it generates feedback to highway agencies: if they build roads no one uses, they get no gas taxes.

Sales taxes generate no feedback at all; the agencies get money whether anyone uses the roads or not. We know from the transit industry what happens when transportation agencies are funded out of general taxes. First, they build expensive monuments aimed at pleasing politicians rather than solving transportation problems. Second, they fail to maintain those monuments. That’s hardly a sound prescription for our highway system.

Another problem with the gas tax is that there are cross-subsidies between users. It is likely that drivers in urban areas, where roads are much more heavily used, end up subsidizing drivers in rural areas. Auto drivers subsidize trucks and buses in many states. People who drive only during non-rush hours subsidize those who drive during rush hours.

A sales tax would only make this problem worse. People who don’t drive at all would end up subsidizing those who do. Hypothetically, someone could drive in Virginia but shop in DC, Maryland, or North Carolina and be subsidized by someone who drives in Maryland but shops in Virginia.

Instead of a sales tax, the Antiplanner favors vehicle-mile fees. Like paying for individual items in a grocery store, vehicle-mile fees would allow users to pay for the roads they use, and not the ones they don’t. Moreover, such fees could eliminate congestion by varying with the amount of traffic.

Someone always frets that vehicle-mile fees will allow the government to track where we are. But every single state experiment with vehicle-mile fees has preserved privacy: the devices used to calculate such fees don’t even record where or when people travel, only that they incur so much of a charge to use the roads. The charges would be split by road owners: cities, counties, states, and (in Virginia and a few other places) private owners; but again, these owners would not know when people used their roads, only that they paid to use them.

The feedback generated remains a little imperfect, as the Commonwealth of Virginia would not know whether someone drove on Interstate 66, 95, or another state-owned road (unless those roads were charging congestion fees). But it would provide better feedback than gas taxes and far better than sales taxes.

Vehicle-mile fees would also solve another problem: the lack of adequate funding for local roads and streets. As the Antiplanner has previously shown, state highways do not face an infrastructure crisis, but county and city road departments must find $30 billion a year in general funds to support their roads, which tend to be more poorly maintained than state roads. Vehicle-mile fees would allow cities and counties to collect their fair share of user fees, and would also create a competitive atmosphere as state, county, and city roads offer users alternate ways of getting from point A to point B at different prices and road standards.

Vehicle-mile fees are really a win-win solution. Highway users win because they will face less congestion. Taxpayers win because they won’t have to subsidize roads. People need to stop being paranoid about the non-problem of privacy and realize that paying for what you use, instead of letting others pay for what you use, is the American way.

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8 thoughts on “End Gas Tax? Yes! Pay for Roads with Sales Tax? No!

  1. C. P. Zilliacus

    The Antiplanner wrote:

    Virginia Governor Bob McDonnell wants his state to be the first to end the gas tax. The Antiplanner supports that idea because gas taxes are an imperfect user fee.

    I think it’s important to note that when McDonnell was running for the office of Governor of Virginia, he claimed that privatizing the Commonwealth’s ABC (state-owned liquor) stores would provide the needed (painless) increase in revenue to fund highway construction and reconstruction. After he took office, that “went noplace fast” in the Virginia General Assembly.

    Vehicle-mile fees are really a win-win solution. Highway users win because they will face less congestion. Taxpayers win because they won’t have to subsidize roads. People need to stop being paranoid about the non-problem of privacy and realize that paying for what you use, instead of letting others pay for what you use, is the American way.

    Randal, what might the per-mile charges be? Would they be higher during times of peak demand and lower in (for example) the overnight hours? Should the charges be the same across an entire state? Will mass transit agencies and their friends demand a “fair share” of a highway user VMT fee?

  2. C. P. Zilliacus

    Other op-ed perspectives on this issue:

    Thomas F. Schaller (professor of political science at University of Maryland Baltimore County) recently wrote this op-ed in the Baltimore Sun.

    And there was this op-ed in the New York Times ran the other day – which has a lot of discussion about taxing highway congestion.

  3. Dan

    Funding with sales taxes presumes the majority of people still have a lot of discretionary income to spend on trinkets. There is no limit to the number of bad ideas that pols will come up with, surely.

    DS

  4. kens

    The biggest problem with gas taxes is that they haven’t been indexed for inflation, so they’ve lost a huge amount of their purchasing power over the years. While increasing average vehicle fuel economy also contributes to their not generating enough revenue to keep up with needs, gas taxes could be also indexed to reflect average fuel economy (so the revenue generated per vehicle-mile driven would remain constant). Supplemental fees for hybrids and electrics could be charged so they’d pay their fair share of road costs, like OR and WA are considering.

    But while these adjustments could make the gas tax viable for at least a couple more decades (as long as petroleum-fueled vehicles remain dominant), there doesn’t seem to be any political will to fix the gas tax, so we should be looking at vehicle-mile-based alternatives. While these do offer many advantages over gas taxes (the ability to vary charges based on the specific roads used, vehicle type, time of day, degree of congestion, etc.), there are still some significant hurdles that will have to be overcome before they can be implemented widely. First, I think the technology will have to be factory-built into the vast majority of vehicles before a VMT-based system could take effect. This would take a minimum of 15 years, I think (time to develop a standard technology and start installing it in vehicles, and time for the fleet to turn over). Forcing a large portion of the population to retrofit the equipment in their vehicles is not going to fly with the public, and if you tried, it would be difficult to enforce effectively. (I’d also expect GPS capability to universal by that time, crucial for an optimally effective VMT-based system). You’ll also have to ensure that the systems are reasonably tamper-proof, which I’d expect to be a bigger problem with retrofitted equipment. And as Randal noted, the privacy issue will have to be addressed, and this will be more difficult with an advanced VMT-based system, one that factors in such things as specific roads and times traveled. (And hopefully, we would not exclude anyone’s vehicles from the fees; not governments, transit agencies, non-profits, schools, churches, etc.!)

    Personally, I would fund arterial and express roads through vehicle-mile fees, but not local streets, which I’d continue to fund through property taxes. I think this is more equitable, as everyone, not just drivers, benefits from them: bikers, walkers, transit riders, etc. Even if you never left your home, you still benefit because your street will be used by the post office, utility companies, fire and police departments, delivery services, etc.

  5. Sandy Teal

    The Antiplanner needs a far better appreciation of the threat of government recording everywhere one travels. These are the same government people who install red light cameras and then shorten the yellow light period just to raise more money. And even if you trust the bureaucrats, the courts will order the records to be used in all sorts of private and minor criminal proceedings.

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