Building Roads Is Great, but so Is Paying for Them

Matching Revenues to Expenditures, or Back to the Future

Infrastructure! It has been a rallying cry for both major political parties as well as for recent presidents. And yet, no major infrastructure package has been passed and implemented over the last several years.

Like his predecessors, President Biden has made passage of a comprehensive infrastructure plan a leading priority. Initially, his infrastructure price tag soared north of $2 trillion. The administration’s original plan allocated $115 billion for roads and bridges, $85 billion for public transit, $80 billion for passenger and freight rail service, $25 billion for airports, and $17 billion for ports and waterways.

Alas, the intrusion of political realities and attendant financial considerations pared the top-line figure associated with an ensuing bipartisan plan to a still meaty $579 billion. At least in terms of the top line, that figure compares favorably to the $305 billion attached to the FAST Act (2015) and $244 billion associated with the SAFETEA Act (2005).

Fresh dollars associated with the bipartisan plan would be in addition to those attached to an existing transportation bill, meaning that America would have to ultimately finance the larger sum of $1.2 trillion that would be spent over 8 years. The package calls for $109 billion above-baseline funding for roads and bridges, $66 billion for passenger and freight rail, $49 billion for mass transit, $25 billion for airports, $16 billion for seaports and waterways, and $15 billion for infrastructure that supports electric vehicles and electric buses.

As indicated by the Wall Street Journal, another tranche of money dedicates $73 billion for building thousands of miles of transmission lines intended to accelerate the transition to renewable energy, $65 billion for broadband internet, $55 billion for water systems, $47 billion for projects designed to deal with climate change, extreme weather, and cyber-attacks, and $21 billion for environmental remediation of polluted areas.

The manner by which these funds will be spent matters greatly. But one could make the argument that how these expenditures will be funded is of even greater significance. With the national debt spiking towards $30 trillion and with electric vehicles set to rapidly gain market share over the next decade, America will need to identify new sources of infrastructure funding into the very long term. Current gas tax rates are already inadequate, and will become even more so going forward. Ongoing and intense focus on infrastructure supplies an opportunity to engage in forward-looking thinking.

As indicated by writer Gabriel Rubin, “Republicans rejected a White House plan to raise taxes on corporations to cover the cost of infrastructure investment, and the White House opposed lawmakers’ ideas to index the gasoline tax to inflation and charge fees to electric vehicles to finance the spending.” Unfortunately, this type of back and forth gets America precisely nowhere.

Available information regarding negotiations indicates that Congressional lawmakers hope to raise approximately $100 billion through public-private partnerships and direct pay municipal bonds. These bonds would be reminiscent of Build America Bonds introduced in 2009. Using federal subsidies, the scheme is designed to offer higher interest rates to investors, thereby inducing institutional and other bond purchasers to invest more aggressively into public projects without damaging the fiscal health of state and local governments. Lawmakers would also generate a net $100 billion by investing $40 billion to tighten Internal Revenue Service enforcement and more aggressively collect taxes that are owed but not yet paid.

Still, these additional sources of revenue fall short of the mark. One obvious gap-fill is to raise the federal gas tax. The last time that happened was in 1993, when the gas tax translated into about 20 percent of the cost of a gallon of gas. Inflation can be cruel and nearly three decades later the gas tax represents just 7 percent of the cost of gallon of gasoline.

In 1999, economist Gregory Mankiw, who later went on to serve as the Chairman of the Council of Economic Advisors under President George W. Bush, proposed cutting income taxes by 10 percent and raising the fuel tax to 50 cents per gallon. The end result would have earners taking home more money while shifting their driving habits.

More recently, many environmental groups have backed higher gas taxes as a way to dissuade people from driving so much and to encourage alternative transportation modes. Perhaps shockingly, many trucking associations have also come out in favor of increasing fuel taxes. In 2019, the Alabama Trucking Association (ATA) voted to support a proposed 10-cent increase in the state’s fuel tax. That year, the Ohio Trucking Association supported an 18-cent increase to its state fuel tax.

These groups are hardly alone. A July 2020 survey indicates that 75 percent of respondents would be willing to pay an additional 10 cents per gallon so long as the funds would go towards maintenance projects. The survey also found that a high number of respondents were open to alternative forms of taxation to fund highway and road spending.

A Promising Idea

One such alternative is a vehicle miles-traveled tax (VMT), which would impose a fee for each mile driven. Importantly, this tax would impact electric vehicles.  The VMT tax program is currently voluntary in Oregon and legislators there have proposed making it mandatory for any new vehicles with a fuel economy rating 30 or higher starting in 2026. A number of other states are considering implementing similar plans.

California Governor Gavin Newsom announced in 2020 that that state would end the sale of all gas-powered passenger cars and trucks by 2035. As climate change becomes more of a central focus, more states could impose similar bans, leading to diminished fuel tax revenues. Since that is the likely future, America might as well find new infrastructure funding mechanisms now.


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