Gas tax revenue declines as cars become more efficient. How will the government pay for roads?

The government faces a dilemma: it is pushing hard for fuel-efficient vehicles, but petrol taxes pay for the roads. There is an obvious solution, but are Americans ready for it?

Of course, tax credits, subsidies and government mandates aren’t delivering the surge in electric vehicle sales promised by President Joe Biden’s administration. Tax breaks for poor buyers are proving less effective than government planners predicted, and carmakers such as Toyota are seeing increased consumer interest in more affordable and practical hybrids.

The predicament is an indictment of industrial policy, an expensive type of government intervention increasingly favored by both political parties. Meanwhile, Americans’ continued preference for internal combustion engines underscores the downsides of subsidizing purchases.

Yet even if many Americans say they will never buy an EV, cars and trucks that use less or no fuel will one day make up the majority of vehicles on the road. The incentive to innovate, far from gluttony, is too strong, so new vehicles won’t contribute much to the gas tax to fund road maintenance, and the infrastructure funding problem will soon be even worse than it is today.

It’s been years since federal gas tax revenue (and other smaller fuel taxes earmarked for the fund) have been enough to cover Congressional spending on transportation infrastructure. To fill the gap, policymakers have authorized the transfer of $275 billion in general funds to the Highway Trust Fund since 2008. About $90 billion in transfers resulted from the infrastructure bill passed in 2021 alone.

My solution to the whole mess is to get the federal government out of infrastructure spending and funding in the first place and put the onus where it belongs: on states, municipalities and the private sector. But given the low likelihood of this idea ever seeing the light of day, we should consider a user fee system designed to charge drivers per mile.

Mileage-based user charges will ensure that those who use the infrastructure the most contribute proportionately more to its construction, maintenance and improvement. Such a design is consistent with the basic principle of user fees, linking payments directly to the actual use of an individual or entity and ensuring a fair and equitable funding structure.

Mark Scribner, a transportation analyst at the Reason Foundation (which publishes this website), points out that while privacy concerns about vehicle mileage tracking are legitimate, they are by no means insurmountable.

Given the high up-front costs involved in setting up a national system — again, this wouldn’t be a problem if we left the federal government out of it — and assured of pushback from the motoring public, state and federal lawmakers should begin tolling only large trucks and other heavy duty commercial vehicles.

Trucks using US transportation systems to transfer critical goods are no scarecrow; they are simply the ideal country to “first” in the full transition from fuel taxes. These vehicles now have recording devices and record mileage. Importantly, they also do not currently pay their share of the costs they impose on the road system, meaning taxpayers are heavily subsidizing companies that use the roads to transport goods.

People may disagree on whether every driver should cover the full cost of using the road, as was once done through the fuel tax. But even the most ardent modern monetary theorist would be hard-pressed to argue that businesses should not cover their own costs. A course correction on this aspect of things will by no means close the funding hole, but it will be a good first step and help create momentum for a wider return to user fees.

New-age populists in the Republican Party may scoff. They opposed the national pilot for a mileage-based system included in the infrastructure bill and are likely to continue to resist such ideas. Some may not like that the idea originated with libertarian groups like the Reason Foundation, or that support for actual user fees was prominent in President Dwight D. Eisenhower’s administration (although President Ronald Reagan endorsed the Republican call in 1982).

And for those who like bipartisanship, a congressional committee on transportation funding recommended a full shift to mileage fees in its 2009 final report.

The way I see it is that greater reliance on user fees will ultimately create opportunities for privatization, a concept supported by numerous studies showing the efficiency and productivity improvements possible through transparent and well-structured public-private partnerships.

The private sector has a proven track record of driving innovation in transport safety. Extending this partnership to infrastructure enables the implementation of cost-effective technologies, ultimately making our roads safer and more efficient.

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