First, a disclaimer. I am a registered democrat and a proud proponent of liberal economic and fiscal policies. So if the title piqued your inner Tea Partier, you will be disappointed.
It is fashionable for transportation professionals to suggest that we need new funding mechanisms, such as a VMT tax, to make up for the shortfall in the fuel tax caused by increased vehicle efficiency and the fact that no one wants to raise fuel taxes. Also, many cities (including Atlanta) are considering increased sales taxes to pay for regional projects. I think both are dreadful ideas.
Taxes on Consumption
The federal fuel tax, which has been the backbone of federal transportation funding for fifty years, has atrophied through the effects of inflation (its current $0.184 level was set in 1992), improved automobile performance, and a leveling of per-capita VMT over the last few years. The highway trust fund is depleted, and many experts have proclaimed a “funding crisis.” I don’t disagree that we need more money to both maintain existing infrastructure and to build new facilities which will sustain economic development in the future.
But let’s pause for a moment and consider why we have this crisis. Of the three contributing trends I identified, two have been core goals of the transportation community for almost fifty years. Cars are more efficient! People are driving less! This ought to invite a party, not an existential crisis. The fact that our infrastructure is crumbling without the means of repair in spite of those two trends is a witness to the failings of the larger political and economic system, and not a merely a funding issue. Also discussion of new taxes or funding streams seems to plainly ignore the first contributing trend: if Congress can’t even peg the fuel tax to inflation, there’s no way we’re ever getting a federal VMT tax.
Besides, what’s wrong with a fuel tax? From an economic standpoint, a tax should capture the complete costs of a transaction. Automobile transportation imposes costs on society in the form of congestion, noise, pollution, lost rent to parking, and any number of others. A fuel tax captures all of them, though to a different degree. Consider that bigger vehicles naturally pollute more, take more space to park, take more space to drive, and make louder engine noises. As it stands now, there is an incentive for large vehicle manufacturers to make their engines quieter, cleaner, and more fuel efficient than the competition; any VMT tax would have to make arbitrary distinctions between vehicle classes that fuel taxes make naturally. And let’s not forget that fuel taxes already have an efficient and existing collection mechanism.
There are admittedly issues with alternative-fuel vehicles not contributing equally to the transportation system, and this does need to be addressed. I would argue the most efficient way is to tax those fuels, with revenues directed into the highway trust fund. Tax coal, tax ethanol, tax natural gas, tax whatever you need to, and adjust the levels so that the market is incentivized to pursue the cleanest or most efficient fuels.
I will admit that I’m a huge fan of congestion pricing. Like a VMT tax, congestion pricing directly charges users for what they are using. But unlike VMT, congestion pricing is sensitive to non-uniform demand for transportation. The marginal cost to society of my driving on an empty road in the middle of the night is not the same as my driving on that same road during the afternoon rush hour. A VMT tax could not incentivize flexible work hours, alternate routes, or other tactics that might mitigate traffic congestion to the same extent that a combination of congestion pricing and fuel taxes could.
Taxes on Surplus
If fuels are the best place to tax consumption, where is the best place to tax surplus? Or more plainly: transportation users pay for their costs through fuel taxes (I know they don’t. Bear with me), but we all benefit from an improved transportation system through reduced goods prices, cleaner air, and a more pleasant environment. This benefit should be taxed as well.
To date, voters have tended to say sales taxes are the best mechanism to collect such a tax. To some extent, this makes sense in that purchasing a good required its transport at some level, and that facilities where many sales take place tend to also be transportation choke points (I’m thinking Buckhead on a Saturday). But a sales tax for transportation also doesn’t make sense in that low-value, high-volume goods (commodities and groceries) have the most deleterious impact on the system but the lowest tax value. As an illustration, I spent as much money on the MacBook Pro I am using to write this post as I do on groceries in half a year. So a laptop computer and six months of groceries for two generate the same sales tax revenue, but one product can be carried in a shoulder bag on a bike and the other would likely require a small truck. Even disaggregated, my computer was delivered by a UPS truck filled with other packages in my region of the city, and my groceries involved at least thirty trips to the grocery store a mile away.
Further, lower-income households spend a much greater share of their income on consumable goods, meaning they bear a much larger relative transportation cost though they derive a smaller relative benefit. I’m not going to argue that you shouldn’t vote for the transportation referendum; indeed, it is the de facto official position of this blog that the measure should pass. But that doesn’t mean I can’t say the TSPLOST is both essential to the Atlanta region, and also a regressive, unfair imposition on its poor.
How then should we fund our regional transportation projects? I think property taxes have to be the solution to this. Properties generate and attract trips at a rate roughly correlated with their value; after all, the entire reason transportation exists is because we feel being somewhere else has more utility than being where we are. The most valuable properties in Atlanta are the ones benefitting the most from advantageous transportation networks, and they should be asked to pay for this benefit.
The Perfect World
In my view, fuel taxes should rise considerably, property taxes should be used to pay for special projects, and congestion pricing should control demand for the busiest roadway segments. I invite you to disagree with me in the comments below.
Very worthwhile arguments, and I agree with your “perfect world” scenario in general. Especially, I am in favor of congestion-based user fees. Also, what you describe with property taxes makes sense, and this is already implemented in many places (i.e. tax allocation districts, or TADs). That being said, I’m going to play devil’s advocate a little.
Sales Tax vs. Property Tax: Land owners who pay property tax can pass the expense on to their tenants. If these tenants are businesses, they can pass the expense on to customers. It is granted that the “poor” are less likely to own real estate, and as such they are not directly exposed to property taxes. However, because they are renters and consumers, couldn’t a property tax scenario affect low-income households just as much as a sales-tax scenario? In both scenarios, the amount of money spent by a household depends on where it shops, and what it buys. The property tax scenario adds an additional tax burden to residential location, which can price low-income households out of more desirable areas. I’m willing to cede that this problem can be mitigated through housing assistance programs or other interventions, but analogous fixes can be applied to mitigate the regressive nature of sales taxes as well.
If special projects are funded through property taxes many complain about whose property taxes go to what. regions with low property taxes either get passed by on projects or receive money from other regions to fund their improvements. I think special projects should be funded according to what type of outcome can be projected. This gets complicated when dealing with particulars, but generally, if I am somehow benefitting from the project at hand, then I probably should have been taxed for it. Considering the notion of taxes is financial, I would argue that the relative price of a commodity such as a house in VaHi vs Westview for property taxes, or the price of lumber vs gas vs groceries inside the border or out, for sales taxes, should not enter into how much I should pay for the service of government. Rather I would argue the total number of tax funds needed should be paid based on use of services and available funds of the individual. I would eliminate all taxes except income and raise income tax substantially.
I leave you with this, imagine you were going to the store to buy some ham and when you got there, they asked you where you lived and how much your house is worth, what other things you had bought that day, and how far you had driven to get to the store, before they calculated their price of ham for you. Well, since you live in a 200k house, we’ll tack on 2 dollars, drove 15 miles to get here, so another 30 cents, and you bought 60 bucks worth of other stuff today? That’ll total $2.90 per pound.
I’m not sure the point the scenario makes. If I drove further to get to the store, I would pay more in fuel taxes. If the ham came further to get to the store, its price would be higher already.
In some ways, the fact that property taxes need to be spent closer to home is one of the benefits. If Gwinnett county wants to keep really low property taxes, it will have to pay for it with substandard infrastructure.
I’m the first to admit that the scheme I came up with has serious drawbacks. But I’m not convinced it’s worse than what we have now.