“Gasoline taxes and tolls pay for only a third of state and local road spending,” claims a report released yesterday by the Tax Foundation, a supposedly independent, non-partisan group. “The rest was financed out of general revenues.” According to the group’s calculations, users paid just $49 billion of the $155 billion cost of roads in 2010, the last year for which data are available.
The Antiplanner is the first to admit that highways are subsidized. But do subsidies cover more than two-thirds of the costs of roads? No way. The Tax Foundation, which claims to be “guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability,” is simply wrong.
First, the group counts federal aid to states as “general funds.” In fact, 100 percent of that federal aid comes from gas taxes and other user fees such as taxes on large trucks and tires.
According to the Federal Highway Adminitration’s Highway Statistics table HF-10, the feds collected $35 billion in gas taxes in 2010, of which $29 billion was given to the states for roads. For some reason, though the Tax Foundation counts state gas taxes as user fees, it doesn’t count federal gas taxes as user fees.
Second, the Tax Foundation fails to count state motor vehicle registration fees, which amount to $33 billion a year and which are mostly dedicated to highways. Almost every state first created these fees as a way for users to help pay for roads.
Third, the Tax Foundation relies on secondary sources for at least some of its information rather than going to the original source, and as a result gets its numbers wrong. Citing a Census Bureau report, it says that state and local governments collected $37 billion in gas taxes in 2010. However, Highway Statistics tables SDF and LDF say that state and local governments received $40.3 billion (net of collection costs) in gas taxes in 2010.
Some of those gas taxes were diverted away from roads by politicians catering to various special interest groups, especially mass transit. But that doesn’t mean that users didn’t pay those fees. Some people think those diversions shouldn’t be counted as user fees. Is a fee paid by users still a user fee if politicians intercept it for pork before it gets to the use the user paid for? I would say yes; the Tax Foundation’s position isn’t clear.
In any case, total federal, state, and local gas taxes, tolls, registration fees, and other fees collected from highway users actually amounted to about $120.4 billion, of which less than $2.5 billion went to collection costs. That would have left nearly $118 billion for roads if politicians hadn’t diverted about $25 billion or so to mass transit and other activities. Even after deducting that $25 billion, the remainder is far more than the $49 billion the Tax Foundation says came from user fees.
Since total costs were $155 billion, there still must be a subsidy, right? Not necessarily. State and local governments sold $33 billion worth of bonds in 2010, most of which will eventually be repaid out of gas taxes and other user fees. Yet the Tax Foundation erroneously counts these as “general revenues.”
Finally, state and local governments received $13 billion in interest on the gas taxes and other user fees they had collected but not yet spent in 2010. The Tax Foundation also erroneously counts such investment income as “general revenues.”
Altogether, then, users paid $118 billion; interest on their fees brought this to $131 billion; and bonds that will mostly be repaid out of user fees bring the total somewhere close to $164 billion. That’s $9 billion more than state and local governments spent on highways, roads, and streets in 2010.
This doesn’t mean there were no subsidies to roads. The states did spend about $13.9 billion of general funds on roads; but this is offset by $16.6 billion diverted by the states out of highway user fees to transit and general purposes. Congress in 2010 had to appropriate $30 billion to top off the Highway Trust Fund, mainly because it had mandated that roughly that amount be spent on transit out of the fund over the previous several years even if gas tax revenues weren’t sufficient to cover the spending (which, after 2007, they weren’t).
The real subsidies are at the local level. In 2010, cities and counties spent about $36.2 billion in general funds on roads and streets, while they diverted a mere $1.2 billion in user fees to other purposes. The result is a net local subsidy of about $35 billion, which isn’t offset by federal and state user fees that weren’t spent on highways.
The way to end these subsidies is to give cities and counties an opportunity to collect user fees for roads. As I describe in my 2012 Cato Policy Analysis, “Ending Congestion by Refinancing Highways,” the best way to do this is through vehicle-mile pricing.
Whatever reforms you support, it is important to get the numbers right. When it counts federal gas taxes, vehicle registration fees, revenues from bonds that will be repaid out of user fees, and interest on saved user fees as “general revenues,” the Tax Foundation is being deceptive.