Tag: Infrastructure

What Should We Do With Higher Gas Tax Revenues?

Most of the economics bloggers I know favor higher gasoline taxes. Not immediately, of course, given our economic weakness. But eventually because of environmental and national security concerns.

As noted yesterday, Tim Kane of the Kauffman Foundation does a quarterly survey of economics bloggers. This time around, Tim included a question from me about the federal gas tax. Specifically, what would economics bloggers do with the money from a higher gasoline tax? (While allowing for the possibility that some don’t want it to go up.)

Here are their responses:

(Note: The federal gas tax is 18.4 cents per gallon; state gas taxes average another 30 cents, according to the American Petroleum Institute.)

As Tim notes in the full survey, “bloggers seem to love the gas tax.” Almost 85% of respondents supported a higher gasoline tax of which fully half would use the money for infrastructure spending. The remainder would use the money for deficit reduction or to reduce other taxes.

Congestion Pricing Saves Time and Money

The Highway Trust Fund will soon be broke. Gasoline tax revenues haven’t kept up with spending, and it’s likely that demands for new highway infrastructure will grow in the future.

Joseph Kile, head of the microeconomics studies division at the Congressional Budget Office, discussed various policy options to deal with this funding gap in his testimony to the Senate Finance Committee on Tuesday. Most news coverage of Joe’s testimony emphasized his suggestion that taxes based on miles traveled, rather than gasoline consumption, might be a better way to finance America’s highways. After all, miles traveled is, along with weight, the primary driver of wear and tear on the roads. And it’s a decent proxy for the benefit that drivers get from having functioning roads.

That’s an interesting idea, but I’d like to highlight another important point that Joe made: the amount of infrastructure America should build depends very much on how we price it.

If a six-lane highway gets congested, that doesn’t necessarily mean that we need to build new lanes or lay out parallel roads.

We could charge congestion fees instead. That would discourage driving at peak times and thus speed traffic without new construction. That’s what London and Singapore famously do to limit traffic in their downtowns. And it’s something we should more here in the United States.

Joe reports estimates from the Federal Highway Administration (FHWA) that congestion pricing could decrease highway spending needs by 25 to 33 percent:

The federal government spent about $43 billion on highway investment in 2010. To maintain the same quality of highway performance would require an average of $57 billion in annual federal spending in coming years, according to the FHWA. That price tag drops to only $38 billion, however, if we make good use of congestion pricing. Congestion pricing would thus save federal taxpayers almost $20 billion per year; state and local governments would save even more, since they pay for more than half the costs of these projects.

Congestion pricing can make our roadways work better, save Americans precious time, and reduce federal, state, and local budget pressures. That a great combination in this time of growing infrastructure needs and tightening budgets.