The Federay Highway Trust is on the verge of running out of money. Tennessee Sen. Bob Corker and Connecticut Sen. Chris Murphy have been praised by, among others, the Committee for a Responsible Federal Budget for calling for a substantial increase in the federal gasoline tax:
The proposal would increase the gas tax by six cents in each of the next two years, boosting the current rate from 18.4 cents per gallon to 30.4 cents per gallon by 2016, which is equivalent to 1993 inflation-adjusted levels. It would also index the gas tax to the Consumer Price Index (CPI) thereafter so it would reach approximately 37 cents by 2024. This tax increase would generate about $180 billion in net new revenue.
The new revenue would be more than enough to cover the $170 billion projected highway shortfall. Unlike other proposals that rely on general revenue transfers or depositing revenues from temporary revenue increases, the Murphy-Corker proposal would provide real additional resources to the HTF to fully fund it and restore its integrity as a user-pays, self-financed program. This proposal essentially follows the recommendation of the Simpson-Bowles fiscal commission to increase gas tax revenues to match projected spending.
The CRFB is not entirely pleased with Murphy-Corker, as it also includes a substantial tax cut. Yet its analysts clearly favor an increase in the federal gasoline tax. As Matthew Phillips of Bloomberg Businessweek reports in a surprisingly comprehensive and thoughtful article, however, an increase in the tax on the scale contemplated by Murphy and Corker is unlikely to prove a durable solution. Federal highway spending has increased sharply over the past 15 years (from $33 billion to $53 billion) as the federal highway system has deteriorated. At the same time, however, U.S. households are consuming less gasoline as they drive fewer miles in more fuel-efficient vehicles, and as they embrace denser living arrangements. A gasoline tax increase — even a high gasoline tax increase — won’t be enough to address the surface transportation shortfall over the long haul.
Rather than replace the gasoline tax with another one-size-fits-all revenue source, Phillips cites a new Republican legislative proposal, the Transportation Empowerment Act (TEA), that would lower the federal gas tax while shifting virtually all responsibility for funding existing and new roads to state governments over five years, a proposal that has been championed by National Review. Phillips then describes some of the different policy approaches that have been embraced at the state level. Maryland, Vermont, and Wyoming, for example, have recently raised their state gasoline taxes while Virginia has replaced its gasoline tax with a higher sales tax. Other jurisdictions, led by Oregon, are experimenting with mileage-based user fees.
What is striking about Phillips account is how it undermines a number of narratives about transportation funding. Some fear that if TEA becomes law, states will engage in a race to the bottom as tax-averse conservative states underfund their highways. Wyoming’s willingness to raise its gasoline tax suggests otherwise. Meanwhile, other conservatives states might eventually establish public road enterprises, as the University of Minnesota transportation economist David Levinson has proposed:
The United States should follow Australia and New Zealand’s lead, and transform its state Departments of Transportation (or the highways divisions thereof) into separate, publicly regulated, self-financing corporate entities. Full-cost accounting—as already performed by Arizona’s Department of Transportation—constitutes a necessary first step in this direction. In making the transition, policymakers should strive to impose regulation only where absolutely necessary, to minimize the anti-competitive effects of any such regulation, and to leave social objectives to the government, thereby freeing road enterprises to focus on economic ones. Accordingly, road enterprises should be permitted to pursue cost-effective contracting and public private-partnerships as they see fit.
The new road enterprises should also be given latitude to make greater use of user fees—as opposed to general revenue—for funding their activities. Such charges are not just more efficient and equitable than traditional funding sources; if properly designed and implemented, they are also better suited to reducing congestion through effective pricing. Vehicle-miles-traveled charges, weight-distance charges and electronic tolling are all options that road enterprises should be free to pursue.
Over time, states will develop transportation strategies tailored to their particular circumstances. Densely-populated states like New York and New Jersey might choose to devote resources to creating Helsinki-style mobility networks while a state like Utah might instead choose to invest in a more expansive road network to support exurban development. States would no longer be hampered by the imperatives of national politics, and the most cost-effective, consumer-friendly state transportation bodies will find eager imitators across the country.
I’ve been very pleased to see TEA garner respectful attention from reporters like Phillips as I see TEA as a paradigm for how conservatives might approach a wide range of domestic policy questions. In K-12 education, a TEA-like approach that frees states from the burden of compliance with federal rules and regulations could prove far more valuable for state and local education officials than relatively modest amounts of money that come with string attached. The emphasis should always be on this notion that all states, including liberal states, would be allowed to go their own way, and to pursue their particular ideas of how a program should be run.