The Agenda

Josh Barro on Subsidies for Driving vs. Subsidies for Mass Transit

At City Journal, Josh Barro has a great piece on an age-old argument deployed by defenders of mass transit subsidies, namely that driving is also subsidized. He makes a number of important points:

(1) The biggest barrier to efficient mass transit isn’t the lack of subsidies. Rather, it is local land use regulations that limit density, which is mass transit’s best friend. At sufficiently high levels of density, we can imagine subsidies dwindling to zero.

(2) Mass transit agencies in the U.S. are, with rare exceptions, plagued by antiquated work rules that result that cripple productivity and uncompetitive compensation structures that make it difficult to retain talented workers while rewarding seniority, which is to say rewarding workers who in many cases aren’t very appealing to other employers.

(3) Moreover, transit advocates aren’t making an apples-to-apples comparison when they compare subsidies for transit and for driving:

In 2008, Americans spent $500 billion on motor fuel (not counting the excise tax) and $173 billion on new cars (not counting taxes and fees). Also, according to figures derived from the Bureau of Labor Statistics’ Consumer Expenditure Survey, American households spent $223 billion on vehicle maintenance, repairs, and insurance. (We’re still missing a few categories, such as parking costs, purchases of heavy trucks and other commercial vehicles, and business and government spending on vehicle maintenance and insurance.) As for highway construction and maintenance, governments at all levels spent $181 billion on them, of which nearly $98 billion came from taxes and fees paid by drivers and the remainder, $83 billion, from general revenues.

All told, then, $1.08 trillion was spent on road travel, with government subsidies providing only $83 billion of the total. That’s a subsidy of less than 8 percent. Even if you add the implicit subsidy from excluding gasoline from general sales taxes, you push the percentage to just over 10 percent. No transit system in North America operates on a subsidy that small. So while the transit advocates’ general attitude is right—any subsidy for road travel is too much, and drivers should pay their own way—they overstate the importance of those subsidies in shaping how people get around.

Incentives matter, and if you ended subsidies for roads, people would drive less—but probably not much less. An end to road subsidies would raise gasoline prices by about 50 to 60 cents a gallon. Over the last decade, fuel prices rose much more sharply than that, which led to a modest reduction in vehicle-miles traveled, but there hasn’t been any sea change in our transportation practices.

This is further evidence for the view that excessive land use regulation is the sleeper public policy issue in American life. 


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