Ending the Federal Surface-Transportation Program Might Be Crazy in a Good Way

by Reihan Salam

So far, the most attractive realistic proposal for reforming federal highway expenditures is “Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways” by Matthew Kahn and David Levinson, which calls for the following:

First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.

But now Rohit Aggarwala of Bloomberg Philanthropies has called for a more radical approach, which might garner bipartisan support while forcing believers in competitive federalism to “put up or shut up.” The proposal closely resembles an idea floated by Christopher Papagianis, my erstwhile Economics 21 colleague. Aggarwalla calls for abolition of the federal gasonline tax and the devolution of responsibility over surface transportation to state governments:

Getting rid of the tax would force a serious discussion in each state about how, and how much, to fund roads and transit. States could choose to reimpose the same tax, or they could set a different rate based on their desired level of transportation spending. They could choose to raise other kinds of revenue to pay for roads and transit — such as sales taxes, property taxes, local taxes or tolls. Or they could simply reduce their transportation spending. 

Intriguingly, Aggarwalla argues that his approach has the potential to yield significant environmental benefits on the grounds that: (a) the federal gasoline tax is too low to have a significant impact on driving habits, but it is politically extremely difficult to raise it to a level high enough to make a difference; (b) voters in the most automobile-dependent states are, for obvious reasons, particularly likely to oppose increases in the federal gasoline tax, yet these voters derive disproportionately large benefits from federal surface-transportation spending as it is currently structured. So abolishing both the federal gasoline tax and (most) federal surface transportation spending would force a reckoning: state governments in automobile-dependent regions would have fewer dollars devoted to surface transportation in their states, which would either yield large increases in the efficiency of infrastructure spending or support for increased transportation spending and the revenue to pay for it, which would other come from new taxes or from other programs.

State-level conservative elected officials in particular should be eager to run with Aggarwalla’s plan, as it will allow them to demonstrate whether or not they can do a better job with scarce transportation dollars. The idea also resonates with Michael Greve’s critique of intergovernmentalism

I think I’m into this idea, though of course it leaves many questions unanswered.