After listening to this report by ABC news, it makes me wonder: just how are we going to pay for new road improvements? What about transit? You hear bold plans put forth by the city of Huntsville (just take a look at their long-range transportation plan (PDF)). But how do we pay for it?
To put it simply, currently the majority of highway construction funding comes from gasoline taxes. There are national taxes as well as state taxes, county taxes, and city taxes on gasoline. The federal tax on gasoline is 18.4 cents per gallon. The Alabama tax on gasoline is 21 cents per gallon in addition to the federal tax, and the Tennessee tax on gasoline is 21.4 cents per gallon. Diesel fuel is also taxed, but at a different rate.
The idea is fairly straightforward. The more you drive, the more gasoline you will consume, and the more gasoline you consume, the more you will pay in gas tax. Makes sense, right? Well, there are several problems with this model that have contributed to a decrease in revenue for transportation projects.
One of these is inflation of our currency. Simply put, inflation means that one dollar can't buy as much today as it could ten years ago. Inflation has been a steady economic force on the US dollar As an example, when the Interstate system was first built in the 1950's, the cost of building an interstate averaged around $3 million per mile. If you were to try and build the same type of interstate in 2011, not taking into account design changes required by AASHTO, it would cost you more than eight times as much; $25.2 million, to be exact.
The inflation rate per year has been positive since 1960. The percentages in the graph are a percentage increase over the previous year. Since the inflation rate is the rate of increase from the previous year, then even if the rate goes down the next year, then it would still be an increase over the previous year.
The second problem is that the gasoline tax model itself is flawed. It taxes users on each gallon of gas consumed. The problem with that is that a gallon of gas isn't always worth the same amount, as you all can probably tell. Many factors, including our friend inflation that we discussed above, have played into the higher cost of gasoline. Right now gas is sitting around $3.25 per gallon here. Ten years ago it would be more like $1.40 per gallon. However, since the tax is a tax on how many gallons are consumed, the revenue for that gallon of gas would be the same regardless of the price of that gallon.
The third problem with the gas tax is that vehicles have been getting more fuel efficient. Now we need less gasoline to make the same length of trip as we did a few years ago. Since we need less gasoline, less gasoline tax revenue is made. It is great that vehicles have been getting more fuel efficient, but for our gasoline tax model, it is not so good.
The fourth problem is that it would be political suicide to suggest raising the gasoline tax rate. For this reason, the gasoline tax has not been changed since 1993. Even then, it wasn't raised to finance construction and repairs of highways, but instead it was raised to balance the deficit. With gasoline prices higher, talk of raising the gasoline tax would be a non-starter in just about any group.
The problem, in a nutshell, is that transportation infrastructure is costing more but there is less money coming in to pay for it. These same problems also exist for mass transit in some form. Knowing that we have little to no control over economic factors such as inflation, what can be done about this problem? What would be the most fair way to generate more revenue for transportation projects?
I seek your opinions on what can be done to fix this problem.
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