The piece was originally published on Forbes.com.
Several states have increased gas taxes over the last few years to raise money for infrastructure maintenance. California and South Carolina did so in 2017, followed by Ohio this year. Others, like Michigan, have balked at proposed increases so far. Proponents of gas tax increases insist the money is needed to repair and upgrade infrastructure. But while there may be pressing infrastructure needs in many states, the gas tax is not the long-term funding answer.
As far as taxes go, a gas tax is one of the most innocuous. It functions as a type of user fee in that the money is raised from drivers to fund the roads they drive on. Tying taxes to the good or service the revenue supports is one way to ensure that people pay in proportion to how much they benefit from it. It also helps ensure that adequate funding is available.
Despite being relatively efficient from an economic perspective, proposals to increase gas taxes are often met with strong resistance. The debate around Ohio’s recent increase was long and difficult as various interest groups on both sides pushed for their preferred policy. The final result, a 10.5 cent increase per gallon, was a compromise between the state’s senate on one side and the governor and house on the other.
Strong opinions on both sides are not surprising. Gas is something almost everybody buys on a regular basis which makes tax increases noticeable. Gas tax proposals also get a lot of media attention and it’s easy to compare taxes across states, which raises questions about why taxes are higher in some states than others.
It’s also one of the few taxes that is discussed in dollar rather than percentage terms. This makes it easier for people to approximate how much an increase will cost them. Saying a tax is increasing by $0.10 per gallon hits home in a way that a similar percentage increase doesn’t.
Gas taxes are also not without problems. Sometimes, the money is not used on what people think it’s being used on. A recent audit of Pennsylvania’s Department of Transportation found that $4.25 billion meant for transportation projects was instead used on state police. A gas tax loses some of its economic efficiency when it funds things unrelated to transportation.
Additionally, while the amount of gas people buy is correlated with road use, it’s not a perfect measure. Cars of similar size and weight generate similar wear and tear on roads, but if one gets better gas mileage its driver will also contribute less to road maintenance. For a long time, this wasn’t much of an issue since gas mileage was strongly linked to the size and weight of vehicles. But electric vehicles (EV), which use no gas, are changing things.
Electric vehicle sales in the United States have been growing steadily since 20111, as shown below. The big increase in 2018 is primarily due to sales of the Tesla Model-3, which is the company’s newest, lower-priced car.
EV sales 2010 – 2018 EVVOLUMES.COM HTTP://WWW.EV-VOLUMES.COM/COUNTRY/USA/
In terms of overall road funding, this isn’t a huge issue—yet. EVs only accounted for 2% of auto sales nationwide in 2018. But if EV sales continue to increase, gas taxes will eventually become insufficient as a source of revenue.
There are alternatives to gas taxes that aren’t impacted by more EVs and that are more connected to road use. Toll roads are already used in many states. In Florida, they generate about 39% of total highway funds. In high-traffic areas, such as many large cities, well-designed congestion taxes raise money and help control traffic flows, thus increasing mobility. This is important since traffic problems reduce employment growth. Importantly, both toll roads and congestion taxes are charged on a per-car basis rather than gasoline use.
States are also exploring mileage-based systems that will charge drivers based on the number of miles they drive rather than trying to get at that information indirectly via gas taxes. There are still technology and privacy issues that need to be worked out with such systems, but as gas use declines due to EVs and more efficient combustion engines, these systems would help diminish uncertainty about future funding.
There are also opportunities to privatize some infrastructure. The operation of toll roads, bridges, tunnels, parking garages, and bus systems can all be privatized and there are many examples, such as the Norfolk Tunnel in Virginia. Privatization frees up public funding for infrastructure that’s more difficult for the private sector to operate or build. Blockchain technology may also make it easier to raise money for private infrastructure projects in the future, thus increasing the amount of private infrastructure investment.
Gas taxes are politically messy and their efficacy is diminishing. It’s time for state lawmakers to shift their focus toward alternative sources of infrastructure funding such as congestion taxes, toll roads, and privatization.
Adam A. Millsap is the Assistant Director of the L. Charles Hilton Jr. Center at Florida State University and an Affiliated Scholar at the Mercatus Center at George Mason University.