Shifting Gears How we pay for transportation, why it's not working, and how to fix it
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Shifting Gears
How we pay for transportation,
why it’s not working, and how to fix itShifting Gears
How we pay for transportation,
why it’s not working, and how to fix it
TONY DUTZIK AND JAMES HORROX, FRONTIER GROUP
MATTHEW CASALE, U.S. PIRG EDUCATION FUND
SPRING 2022Acknowledgments
The authors wish to thank Marie Venner, Chair, TRB Environmental Management &
Decarbonization, AKR10-1; and André Leroux, Director, Gateway Hubs, Project MassINC,
for their review of drafts of this document, as well as their insights and suggestions.
Thanks also to Susan Rakov, R.J. Cross and Bryn Huxley-Reicher of Frontier Group for
editorial support.
The authors bear responsibility for any factual errors. Policy recommendations are those
of U.S. PIRG Education Fund. The views expressed in this report are those of the authors
and do not necessarily reflect the views of our funders or those who provided review.
2022 U.S. PIRG Education Fund. Some Rights Reserved. This work is licensed under a
Creative Commons Attribution Non-Commercial No Derivatives 3.0 Unported License.
To view the terms of this license, visit creativecommons.org/licenses/by-nc-nd/3.0.
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Cover photo: Irina Blok via UnsplashContents
EXECUTIVE SUMMARY........................................................................................................................4
INTRODUCTION....................................................................................................................................8
THE U.S. SYSTEM OF TRANSPORTATION FINANCE IS BROKEN AND OBSOLETE.....................10
The transportation funding “bargain” has broken down.....................................................................................10
Falling gas tax revenues, more spending......................................................................................................11
Taxes on driving don’t recoup its massive cost to society.........................................................................12
America spends too much money on the wrong transportation priorities......................................................14
The current transportation finance system prioritizes highways and underfunds everything else........ 15
Too much money is spent on new projects and not enough on repairing what we already have..........16
Our system of pricing transportation encourages damaging behavior
and discourages healthy and sustainable choices.............................................................................................17
The current funding model incentivizes the most societally damaging modes of travel........................17
The transportation finance system disincentivizes modes of travel that should be encouraged..........18
Penalizing electric vehicles......................................................................................................................18
Making transit more expensive than driving..........................................................................................18
Encouraging large vehicles over small ones..........................................................................................19
A NEW PARADIGM FOR TRANSPORTATION FINANCE..................................................................21
Ensure that the cost of different modes of transportation reflects their true impact on society..................21
Spend money where it makes sense....................................................................................................................25
CONCLUSION......................................................................................................................................28
NOTES ................................................................................................................................................29Executive summary
THE U.S. SYSTEM of transportation • Prioritize spending on transportation
finance is broken. Created a century ago to projects based on the benefits they deliver
fund the build-out of the nation’s road net- to society.
work, the system was designed to funnel
revenues from gas taxes and motor vehicle The transportation funding bargain has
fees into “trust funds” devoted to highway broken down. America’s transportation
construction and maintenance. That system system was built on a simple idea: drivers
succeeded in financing the construction of would pay for the cost of the roads they use
the most expansive highway network in the through gas taxes and motor vehicle fees.
world. But it is failing America today. So-called “user fees” never completely cov-
ered the full cost of the roads, but today, the
Too much money is wasted on boondoggle gap is wider than ever.
projects, even as critical 21st century trans-
portation needs go unmet. The original • Gas taxes and other fees on drivers pay
bargain at the heart of the system – that for only around half of the total cost of
drivers would bear the costs of building building and maintaining roads nation-
and maintaining the roads they use – has wide, and often less than that.1 Since
been broken, with decision-makers at all 2008, Congress has channeled more than
levels spending increasing amounts of $153 billion in general revenues to the
general tax revenue on roads to avoid rais- federal Highway Trust Fund – shifting
ing gas taxes. By making driving relatively the burden of highway construction from
cheap and convenient – and options such those who drive to all Americans, even
as transit, biking and walking difficult those who rarely or never drive or who
and expensive – the transportation finance don’t even own a car.2
system is a formidable obstacle to build-
ing a cleaner, healthier and more livable • Drivers have never covered the other
America. costs they impose on society – from
noise pollution to air pollution to climate
America cannot address the challenges change. These costs are massive and
of the 21st century with a transportation growing, well outstripping the direct
finance system created in the horse-and- costs of road maintenance. For example:
buggy era. The nation should build a new
system based on two simple principles: o Motor vehicle crashes: Approximately
39,000 Americans die in car crashes
• Charge transportation taxes and fees that every year, and millions more are hospi-
reflect the full costs – including health talized with serious injuries.3 In 2020, the
and environmental costs – that Ameri- estimated financial cost of motor-vehicle
cans’ transportation choices impose on deaths, injuries and property damage
society. totaled more than $474 billion.4
PAGE 4o Air pollution: Air pollution from road The U.S. Department of Transportation
transportation is thought to be respon- estimates a backlog of over $105 billion
sible for at least 58,000 deaths in the U.S. for transit infrastructure in need of
each year, although more recent research replacement.12
suggests that this figure itself is a
significant underestimation.5 One study • Federal transportation policies incentiv-
estimates the annual cost of damage ize highway expansion and include no
caused by air pollutants nationwide to requirements that states prioritize spend-
be up to $277 billion, 16% of which is ing on repairs or long-term maintenance.
attributable to cars, light-duty trucks and They also make it easier to fund highways
SUVs.6 The air pollution-related damage (for which federal funding can cover 80%
caused by driving is an estimated $10.7 or more or the cost) than transit projects
billion to $41.6 billion per year.7 (which typically receive a federal match
of 40% or less and require proof that each
o Climate change: Transportation is new project has the funds required for
the largest single source of U.S. green- rehabilitation or maintenance).
house gas emissions. In 2020, gasoline
consumption from transportation • Many state governments have transporta-
resulted in the emission of around 948 tion finance policies that are even more
million metric tons (MMT) of carbon skewed toward highway construction.
dioxide (CO2) and diesel consumption About half the states prohibit the use of
emitted 428 MMT.8 Assuming a social gas tax revenue for transit, while nine
cost of carbon of $51 per ton of CO2, the states spend less than $1 per person per
total cost of emissions from gasoline year on average on state support of public
consumption in the transportation sector transportation.13
is $48.3 billion and diesel emissions $21.8 • Critical 21st century transportation needs
billion.9 – such as enhancing safety for people on
bikes or on foot – receive only minimal
Our transportation finance system lav-
federal funding.
ishes funding on wasteful boondoggle
projects while leaving today’s most impor- America’s system of transportation taxes and
tant transportation needs unmet. fees often makes highly damaging modes of
travel cheaper than sustainable ones.
• In 2014, the latest year for which data is
available, federal, state and local govern- • Driving is subsidized directly through the
ments spent $26 billion on highway use of general funds for road maintenance
expansion projects. Highway expansion and construction, and through tax code
has limited benefits and contributes to provisions such as state sales tax exemp-
auto dependence, sprawl, and damage to tions on motor fuels and the income tax
the environment and public health.10 exclusion for commuter parking benefits.
Tax subsidies to U.S. motorists alone
• At the same time, the nation’s aging
amount to between $25 billion and $83
highways and transit systems have massive
billion per year, equivalent to between
unmet repair needs. America’s transporta-
$210 and $708 per U.S. household.14
tion infrastructure repair backlog currently
totals more than half a trillion dollars, • Since 1990, average transit fares have
including $435 billion needed for road increased 143%, while the federal gas tax
repair and $125 billion for bridge repair.11 has not been increased since 1993.15
PAGE 5• Concerns that the rise of electric vehicles approximate their true impacts,
(EVs) will exacerbate the growing trans- governments should avoid adopting
portation funding shortfall (since they EV fees that could slow adoption of
don’t use gas, and thus don’t pay gas tax) cleaner vehicles.
have led some states to impose registra-
tion fees and other charges on EVs that o Price public transportation to account
can make it more expensive to drive an for the benefits transit trips deliver to
EV than a gas-powered car.16 society. Transit trips should be priced
relative to the marginal cost of provid-
Raising the gas tax, or increasing other ing them, and the cost of a transit trip
forms of transportation revenue, won’t should be lower than a competing car
solve these problems on their own. Amer- trip to incentivize mode shift.
ica must adopt a new system of transporta-
tion funding based on two principles: Prioritize spending on transportation
projects based on the benefits they deliver
Charge taxes and fees on transportation to society.
that reflect the full costs Americans’ trans-
portation choices impose on society. • America should prioritize investments
that address the nation’s biggest challeng-
• Cleaner, healthier and more sustainable es and avoid wasteful boondoggle
forms of transportation – like riding a bus projects.
or a bike –should ideally be cheaper than
dirtier and more dangerous modes, like • Specifically, policymakers should:
driving, and transportation taxes and fees
o Treat transportation taxes and fees
should be oriented toward encouraging
as taxes and use the revenue for the
the use of the least-impactful mode for
purposes with the greatest benefit to
every trip.
society. This means ending the dedica-
• Specifically, policymakers should: tion of revenues from transportation
taxes and fees to support the modes
o Impose taxes or fees that recover the from which they were raised.
cost of pollution, road wear, congestion
and other societal impacts imposed by o Eliminate provisions in federal and
vehicle use. This can be in the form of state law that encourage spending on
impact-specific taxes and fees (e.g., wasteful highway projects. Ensure that
congestion pricing, carbon taxes, VMT transit, biking, walking and demand
taxes, parking charges) or increased reduction policies are treated at least
fuel taxes or other taxes that act as a equally to – and ideally are given
proxy for a mode’s impact on society. preference over – highway projects.
o Ensure that fees are differentiated by o Adopt clear goals to guide transporta-
vehicle size and fuel used. Large tion investments. These should include
vehicles should pay higher fees than goals to reduce climate pollution, reduce
small ones; fossil fuel vehicles should air and water pollution, reduce crashes
pay higher taxes and fees than electric and deaths, expand transportation
ones. Until such time as gasoline and options and access to destinations, and
other fuel taxes increase to better support thriving, healthy communities.
PAGE 6Breaking the link between how transporta- In 2011, total UK public spending on trans-
tion revenue is raised and how it is spent portation amounted to only 72% of total fuel
would bring the United States into closer tax revenues (and less than a third of fuel
alignment with transportation funding tax revenue was dedicated to roads), the
practices in the rest of the developed world. remainder staying in the general fund for
Examples from abroad indicate that a sys- use on other societal priorities.18
tem in which driving pays its true costs and
revenues collected from drivers are deposited • In Germany, transportation investment
in a general fund instead of being dedicated comes from general taxation and individual
exclusively to transportation would not only states’ transportation funding in large part
bring in sufficient revenue to finance neces- comes out of the federal coffers.19 Gasoline
sary improvements to the country’s transpor- is taxed at a significantly higher level
tation system, but also leave funds left over to than the U.S., bringing in more revenue
invest elsewhere. each year than the country’s total annual
federal transportation spending, but these
• Drivers in the United Kingdom pay relative- revenues are not dedicated solely to trans-
ly high fuel taxes, including a percentage- portation. Germany also has a partial user-
based, value-added tax and an excise tax.17 pay system in the form of per-mile tolls for
However, these revenues are not ringfenced heavy trucks on certain federal highways,
for transportation, but are instead deposited revenues from which are dedicated to road-
into the UK’s Consolidated (general) Fund. related projects.20
PAGE 7Introduction
ONE OF THE MOST PERSISTENT fallacies This system of transportation funding was
underpinning U.S. transportation policy is designed to facilitate the construction of
that roads “pay for themselves.” According high-quality roads at a time when there
to this narrative, the cost of building and were few of them. While it may have made
maintaining roads is covered by gas taxes, sense for a nation building a brand-new
registration fees and other driving-related highway network, a century later it no
fees paid by the “users” of those roads – longer does. In fact, it is holding the nation
i.e., drivers. These revenues, the theory back.
goes, are not “taxes,” conventionally under-
stood, but “user fees,” and as such should Continuing to allocate transportation
be used exclusively for the benefit of those dollars as though road construction were
who pay them. the nation’s main transportation prior-
ity prevents us from getting to work on
Like many enduring myths, this concep- the real transportation priorities of the
tion of transportation finance has some 21st century: keeping our already massive
basis in reality – or at least, the reality of road network in good repair, reducing our
a century ago. In 1919, Oregon became the nation’s contribution to climate change,
first state to adopt a per-gallon tax on gaso- curbing air pollution, reducing the num-
line, which was used to fund roadbuild- ber of transportation-related deaths and
ing projects including the Pacific Highway injuries, and expanding the availability of
and the Columbia River Highway.21 Within a wider range of sustainable transporta-
a little over a decade, every state and the tion options – from rail travel to electric
District of Columbia had followed Oregon’s bikes – to more Americans, including
model.22 The federal fuel excise tax was those who don’t, or can’t, drive.
initially levied in 1932 as a deficit reduc-
tion measure at the height of the Great Refusing to charge transportation system
Depression, but the current federal gas tax, users for the full impact of their choices
adopted in 1956, was dedicated specifically on society – not just wear and tear to the
to funding construction of the Interstate roads, but also emissions, congestion, noise
Highway System.23 As the U.S. built out its and more – results in a large and persistent
road network, taxes on drivers, often put economic subsidy for more travel in bigger,
into “trust funds” dedicated exclusively for more dangerous and more highly polluting
use on highways, covered the lion’s share vehicles, exactly the opposite of the direc-
of the cost. tion in which the nation needs to go.
PAGE 8We need to envision a new finance system the antiquated formulas designed to serve
that addresses the transportation needs of the needs of an America that no longer exists,
the 21st century. In this white paper, we sug- and focus on the transportation needs of
gest such an approach. today.
The “bargain” at the core of the current In the early 20th century, policymakers
system – that drivers would cover the costs designed a system of transportation finance
of roads and have full use of money from geared to the needs of the times. Today, in
the gas tax for that purpose – no longer the early 21st century, it is time for policymak-
applies. Our approach to pricing and pay- ers to reimagine our transportation finance
ing for transportation has to move beyond system to do the same.
PAGE 9The U.S. system of transportation
finance is broken and obsolete
AMERICA’S TRANSPORTATION SYSTEM is Like many enduring myths, the idea that
the nation’s leading contributor to climate the gasoline taxes and other fees that road
change, kills roughly 39,000 people on the users pay cover the cost of highway mainte-
roads each year and injures millions more, nance has its roots in the truth. In the early
produces air pollution that cuts short the 20th century, America had few good roads.
lives of tens of thousands of people each With automobile use growing, the demand
year, and leaves millions of Americans for road construction and improvement
stuck in traffic every morning and evening, grew. But how would the nation pay for the
while tens of millions more who can- massive capital investment required?
not or do not drive are left without good
transportation options, or else are entirely In 1919, Oregon came up with a solution: the
stranded.24 state adopted a tax on gasoline, the proceeds
of which were used in part for highway con-
These problems are rooted in, and have struction and maintenance in the state. The
been perpetuated by, America’s system for implicit bargain – later reflected in the adop-
raising and spending transportation funds tion of a similar gas tax by every state – was
– a system created in the early years of the that drivers, not taxpayers at large, would
20th century to build out the nation’s road pay the costs of the highways they use. This
network – which is now generations behind same philosophy guided the dedication of
the times. Changing how the dollars flow the federal gas tax to the construction of the
is a critical step toward fixing the nation’s Interstate Highway System in 1956.
longstanding transportation problems.
Drivers have never paid the full cost of
To develop a better system of transportation roads, but for a time they did cover the
finance, it is first important to identify where lion’s share of the cost of highway construc-
the current system goes awry. In short: tion and repair, although even at the best of
America’s transportation funding raises times only around 70% of the cost of high-
money in the wrong ways and spends it on way construction, maintenance and opera-
the wrong things, incentivizing modes of tion nationwide was covered in this way.25
travel that leave all of us worse off.
Since then, however, the transportation
finance “bargain” has broken down. Driv-
The transportation funding “bargain” ing-related fees pay for a lower share of the
has broken down cost of highways than they did decades
Roads don’t pay for themselves. But many ago. And they cover none of the massive
Americans believe they do. environmental, health and safety costs
PAGE 10that transportation imposes on all of us – by fuel and vehicle taxes. Toll revenues
many of which, such as costs related to the accounted for 8.95% ($23.10 billion) and
impact of global warming, would have been bond issue proceeds and other investments
undreamed of by the initial architects of the 17.52%.26 The rest – almost one-third ($80.31
nation’s transportation finance system in the billion) of the total – was paid for by prop-
early 20th century. erty taxes, general fund appropriations and
other taxes and fees.
FALLING GAS TAX REVENUES, MORE
SPENDING In other words, we all bear the financial
burden of driving, regardless of how much
Today, motor fuel and vehicle taxes cover we drive, or whether we drive at all.
only around half of the cost of highway con-
struction and maintenance nationally, and Recent years have seen a steady increase
often less. The remainder comes primarily in the share of transportation costs paid by
from general taxes paid by all taxpayers, the general taxpayer. This is the result of
including income, sales and property taxes increasing highway spending, coupled with
and other levies. In 2019, only 43.5% ($112.19 decreasing gas tax revenue when adjusted
billion) of total highway costs were covered for inflation.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Fuel taxes and toll revenues Property taxes and assessments General fund appropriations
Other taxes and fees Investment income and other receipts Bond issue proceeds
Figure 1: Sources of Highway Funding. Source: Federal Highway Administration, Highway Statistics series of reports, Table-HF 10
PAGE 11For much of the 20th century, occasional TAXES ON DRIVING DON’T RECOUP ITS
increases in fuel taxes, combined with con- MASSIVE COST TO SOCIETY
sistent growth in vehicle miles travelled The implicit bargain of America’s transpor-
(VMT), helped to generate the funding tation finance system is that driving will
needed for highway construction. Since “pay its own way.” Traditionally, that has
the early 1990s, however, the federal gas been defined as covering the cost of build-
tax has remained at 18.4 cents per gal- ing, maintaining and operating the roads.
lon.27 The decline in the purchasing power But it should also include recouping the
of gas taxes due to inflation, coupled massive environmental, health and other
with policymakers’ desire to continue to costs imposed by transportation on society.
increase overall transportation spending,
has contributed to the decline in the per- When the current system of transportation
centage of transportation costs covered by finance was being developed, the environ-
user fees. Other factors, including the ris- mental and societal costs of automobile use
ing cost of construction and maintenance; were never taken into account. Those costs –
decreasing fuel consumption as a result of air pollution, noise pollution, greenhouse gas
improved vehicle fuel economy and more emissions, crash damages to non-drivers and
hybrid and electric vehicles on the roads; property, and more – are now by any reason-
and the recent plateauing of driving, have able measure greater than the cost of road
also contributed.28 maintenance. Instead of being picked up by
drivers themselves, however, they are shifted
As gas tax revenues have stagnated, poli- to others, including victims, taxpayers and
cymakers have been able to continue to the government. These costs include:
increase spending on highways by tapping
revenues from other taxes and, in the case Motor vehicle crashes
of the federal government, increasing the Every year, on average, approximately
deficit. Since 2008, for example, the federal 39,000 Americans are killed and millions
Highway Trust Fund has been supple- more injured in vehicle crashes.32 In 2018,
mented with congressional transfers of nearly 6,300 pedestrians and more than 800
more than $153 billion of general revenues, cyclists were killed in traffic-related acci-
and the bipartisan infrastructure frame- dents, and the National Highway Traffic
work passed in November 2021 will trans- Safety Administration reports that, in 2020,
fer a further $118 billion to the fund to the total number of motor-vehicle-related
keep it afloat for the next five years.29 States deaths stood at 38,680.33 The estimated
such as Texas have also dedicated other financial cost of motor-vehicle deaths,
government revenues – including revenue injuries property damage and other finan-
from oil and gas taxes and the state sales cial impacts in 2020 totaled more than $474
tax – toward transportation.30 billion.34
Absent an increase in the gas tax, a reduc- A more detailed breakdown published by
tion in transportation spending, or the the National Highway Traffic Safety Admin-
creation of a new source of revenue (such istration in 2015 calculated that in 2010,
as a VMT tax) the flow of general funds to motor vehicle crashes imposed an estimated
the Highway Trust Fund will need to $292 billion in economic costs. These costs
increase over the coming years if it is to include lost productivity ($93 billion), medi-
remain solvent.31 cal costs ($28 billion), congestion-related
PAGE 12costs ($34 billion) and property damage around 948 million metric tons (MMT) of
($92 billion), as well as legal and court costs, CO2 and diesel consumption produced 428
emergency service costs, insurance admin- MMT – together equating to roughly 84% of
istration costs and others.35 When “quality the sector’s total CO2 emissions.45 In March
of life valuations” are taken into account, 2021, the Biden administration released
the total cost of societal harm from vehicle an estimated “social cost of carbon” of $51
crashes in 2010 was just over $1 trillion.36 per ton.46 Applying that estimate to trans-
Private insurers picked up a little over 50% portation emissions, the social cost of CO2
of those costs, with the remainder divided emissions from gasoline consumption in
among crash victims, third parties and gov- the transportation sector would be $48.3
ernment.37 Roughly 7% of these costs were billion and diesel consumption $21.8 billion.
paid for out of the public purse at a cost of Together these impose an annual burden
$21.75 billion to the general taxpayer, plac- of approximately $571 on every American
ing an additional tax burden of more than household.47 If gasoline and diesel were
$188 on every U.S. household.38 taxed at a rate that covered the cost of the
damages imposed by the CO2 emissions
Air pollution they produce, this alone would equate to
Air pollution from road transportation a tax of at least $0.40 per gallon of gaso-
emissions is responsible for at least 58,000 line and $0.49 on diesel.48 If medical costs
deaths in the U.S. each year, making trans- incurred by health impacts related to cli-
portation the largest single contributor to mate change were to be taken into account,
premature deaths from air pollution, and that figure would be considerably higher.49
the most recent research suggests that this
Noise pollution
figure itself is likely a significant under-
estimate.39 Pollutants in vehicle exhaust The numerous, often serious health impacts
have been linked to heart, vascular and of noise pollution created by road traffic are
lung conditions, cancer, and a wide range often overlooked. Exposure to road traffic
of other illnesses.40 A 2007 study estimated noise can contribute to impaired mental
the annual cost of damage imposed by air health, insomnia, depression and anxiety,
pollutants nationwide (not including CO2) as well as increasing the risk of cardio-
to be between $71 billion and $277 billion in metabolic diseases, cardiovascular diseases
2002, with cars, light-duty trucks and SUVs and strokes.50 The estimated costs of traffic-
responsible for around 16% of those damag- related noise in terms of property values
es.41 The air pollution-related damage attrib- alone are in the region of 0.4-0.6 cents per
utable to driving, therefore can be estimated VMT, but if taking into account healthcare
at $10.7 billion to $41.6 billion per year, an and other costs, such as lost workplace pro-
average of between $93 and $360 per U.S. ductivity due to illness, this figure would
household per year.42 be significantly higher.51 Limited data exists
on these costs in the U.S., but studies from
Climate change Europe suggest that they are substantial. A
In 2018, transportation accounted for 28% of 2011 report by the European Commission
total U.S. greenhouse gas emissions – more estimated the social cost of road traffic noise
than any other sector.43 The U.S. Energy in the EU as EUR 36 billion ($57 billion) per
Information Administration estimates year.52 A 2014 Swedish study estimated the
that in 2020, gasoline consumption from social cost of road traffic noise in Sweden at
transportation resulted in the emission of more than SEK 16 billion ($2.8 billion).53
PAGE 13Other costs nations generally charge far higher taxes on
Other unpriced external costs of automobile gasoline use (see Figure 2), an implicit recogni-
use range from the costs of traffic congestion tion of the societal costs imposed by driving.
(one 2019 study found that the hours lost to
traffic delays cost the U.S. economy a total of
America spends too much money on the
$179 billion every year) to the environmental
costs of improper disposal of vehicles and wrong transportation priorities
parts, to water pollution from automobile Our current system of transportation fund-
components and road salt, to the military ing was designed to do a specific job: build
and geopolitical costs of oil dependency.54 For roads. A century later, this job no longer needs
example, a 2019 study found that of the 7 tril- doing. America has the world’s largest road
lion pieces of microplastics that wash into San network.58 The roads have been built, and
Francisco Bay each year, almost half the entire transportation policy now operates within
microparticle count were rubber particles an entirely new context that brings with it an
likely from vehicle tires.55 Road salt is simi- entirely new set of challenges – challenges
larly damaging, contaminating groundwater, which the current funding system is ill-
rivers, streams, and potentially drinking equipped to meet.
water, and is thought to have been a factor in
the water crisis in Flint, MI.56 Where once the nation stood on the cusp of
an explosion in automobile use, current trends
Were the price we pay for using a car to cover point in the opposite direction: Americans
these and the myriad other societal and envi- are leading increasingly multimodal lives,
ronmental impacts of our car-dependent trans- the younger generations seemingly no longer
portation system, it would be significantly quite share their forebears’ infatuation with
higher than it currently is. Other developed driving or car ownership, and public opinion
$4.00
$3.50
$3.00
$2.50
Tax Per Gallon
$2.00
$1.50
$1.00
$0.50
$0.00
Australia
Estonia
France
Korea
United States
Austria
Belgium
Canada
Mexico
Poland
Slovakia
Finland
Germany
Hungary
Iceland
Greece
Israel
Lithuania
Norway
Spain
Chile
Ireland
Italy
Sweden
Turkey
Japan
Latvia
Czech Republic
Denmark
New Zealand
Slovenia
Switzerland
Luxembourg
Netherlands
Portugal
United Kingdom
Figure 2: OECD Gas Excise Tax Rates (Per Gallon), 201757
PAGE 14is leaning toward a desire for more and bet- split” in transportation spending as part of a
ter transit rather than more and wider roads.59 deal to increase the gas tax, which has meant
Where once the imperative was to create a that highways receive approximately 80% of
system that maximized mobility by car, today, federal transportation dollars and transit 20%,
the priority must be to expand transportation which remains the case today. The federal cost
choices and ensure that mobility doesn’t come share of new-build transit projects is signifi-
at the expense of our health, the environment cantly lower than the 80% match for highway
and the global climate. projects, with recent rounds of federal capital
grants for transit covering less than 40% of the
THE CURRENT TRANSPORTATION FINANCE project costs.64
SYSTEM PRIORITIZES HIGHWAYS AND At the state level, funding is often even more
UNDERFUNDS EVERYTHING ELSE
dramatically skewed toward highways. Many
When America’s current system of transporta- states have statutory or constitutional restric-
tion finance took shape in the early 20th century, tions limiting the use of gas tax revenue to
it was designed with a very specific purpose in highways. In fiscal year 2019, only 13 states
mind: build (and later, maintain) roads. used revenue from the state gas tax for tran-
sit.65 As a result, many states provide little
The federal government has provided funds to
or no direct funding for transit. Three states
support state construction of highways since
(Alabama, Hawaii and Nevada) report spend-
1916.60 The federal Interstate Highway Program
ing no state money on transit, while another
provided generous funds to states for the build-
six (Idaho, Kentucky, Mississippi, Missouri,
out of their networks of high-speed highways,
New Hampshire and Ohio) spend less than $1
with the federal government covering 90% of
per person per year on state funding for pub-
the cost of Interstate highways and the states
lic transportation.66 Many other states provide
10%. Today, federal funding can be used to
only token funding, relying on federal funds
cover 80% or more of most federally supported
and funds raised from local sources to pay for
highway projects.61
the costs of transit.
In many cases, these taxpayer dollars are today
The result is that, in total, since the dawn of
spent on unnecessary highway construction
the Interstate Highway era in 1956, nearly
and expansion projects that are sometimes
nine of every 10 capital dollars spent on
intended to address problems that do not exist,
transportation have gone toward highways or
are doomed to fail in their stated objectives
aviation, leaving low-carbon transportation
(road widening does not solve congestion, for
options such as transit, walking and cycling
example – in fact it makes it worse), and/or
underfunded.67
impose serious negative impacts on the com-
munities around them.62 These projects cost Compared to the amount the public pays
taxpayers billions of dollars to build and many toward building and operating the highway
more billions to maintain, saddling future gen- system, both in taxes and fees and in addi-
erations with expensive maintenance needs. tional indirect subsidies and unpriced exter-
nal costs, investment of public money in other
Public transportation, on the other hand, was
modes of travel is far lower.
historically run by private entities operating
under franchise agreements at the turn of the In 2019, federal spending on highways totaled
20th century and remained so until the mid-cen- $46 billion.69 By comparison, in 2018, federal
tury. The first direct federal funding for public funding for transit capital and operating
transportation did not occur until 1961.63 It was expenditures totaled approximately $12.5
not until 1982 that Congress adopted the “80-20 billion.70 In 2018, Amtrak received federal
PAGE 15Aviation Water is now aging and in dire need of repair. Cur-
9% Transportation rently, 173,000 miles of road and more than
Rail 2% 45,000 bridges across the country are clas-
1% sified as being in “poor” condition.74 As of
2017, 11 states had at least 30% of their roads
Mass Transit in poor condition, and this percentage has
10%
risen over recent years.75 From 2009 to 2017,
37 states saw an increase in the percentage of
roads in poor condition, and the total per-
centage nationwide rose from 14% to 20%.76
Over the last decade, the number of vehicle
miles traveled on roads in poor condition has
risen from 15% to more than 17%.77
America’s transportation infrastructure repair
backlog currently totals more than half a
Highways
78% trillion dollars, including $435 billion needed
for road repair and $125 billion for bridge
Figure 3: Government capital investment in repair.78 By one estimate, as of 2017, keeping
transportation since 195668 our existing road network in acceptable repair
Source: Congressional Budget Office. Includes capital, operation and and fixing the backlog of roads in poor condi-
maintenance funding.
tion alone would require $231.4 billion annu-
ally over a six-year period.79 In addition, the
appropriations of around $1.9 billion to cover
U.S. Department of Transportation estimates
passenger rail operations in its national and
a backlog of over $105 billion for transit
Northeast networks, and, in 2020, federal
infrastructure in need of replacement.80 Pas-
funding for walking, cycling and other active
senger rail infrastructure, too, is in need of
transportation modes totaled a meager $850
repair. Amtrak reports a $45.2 billion repair
million.71 Even the limited federal funding
backlog in the Northeast alone.81 Yet even as
provided for active transportation doesn’t
these repair needs pile up, states continue to
always get used for the purposes for which it
pour billions of taxpayer dollars into new and
is intended. By one analysis, in 2020, almost
expanded roads and other wasteful infra-
one-fifth of the funding apportioned to states
structure projects.
and cities for walking and cycling infrastruc-
ture improvements through the Transporta- There is currently no requirement that states
tion Alternatives program was reallocated receiving federal funds must direct them
to other projects, including those that benefit toward repair and rehabilitation of existing
automobile users.72 Transportation demand infrastructure rather than the construction
management (TDM) programs – often the of new and wider highways. In fact, states
most cost-effective solution to transportation spend roughly the same amount on build-
problems – tend to receive even less funding.73 ing new and wider roads as they do on fix-
ing existing ones.82 Between 2009 and 2014,
TOO MUCH MONEY IS SPENT ON NEW states spent on average $21.4 billion annu-
PROJECTS AND NOT ENOUGH ON REPAIRING ally on road repair and $21.3 billion annu-
WHAT WE ALREADY HAVE ally on road expansion.83 Over that time,
Over the course of the 20th century, America spending on road repair accounted for 30%
built out the world’s most extensive network of states’ total capital spending on high-
of highways, but much of this infrastructure ways, and road expansion 29%.84 In addi-
PAGE 16tion to diverting funds away from repair THE CURRENT FUNDING MODEL
and maintenance, as well as from transit INCENTIVIZES THE MOST SOCIETALLY
and other non-auto modes of transporta- DAMAGING MODES OF TRAVEL
tion, every dollar spent on road construc- Through a variety of benefits, both indirect
tion and expansion adds to the burden of and direct, the U.S. government heavily
maintaining highways in the future. A subsidizes automobile travel. A 2008 study
single new lane-mile of road costs around estimated the total value of tax subsidies to
$24,000 annually to maintain.85 Between U.S. motorists as between $25 billion and $83
2009 and 2017, the U.S. public road network billion per year, equivalent to $210 to $708
grew by almost a quarter of a million lane per U.S. household.88 These subsidies have
miles.86 Maintaining those new roads alone the net effect of artificially bringing down
will therefore require spending roughly an the cost of automobile travel, often making
additional $5.4 billion per year.87 driving the cheapest, and therefore most
attractive, mode of transport. Research shows
Our system of pricing transportation that this heavy subsidization is an important
encourages damaging behavior factor underlying high levels of driving in
the U.S. A 2011 study comparing U.S. and
and discourages healthy and
German residents found that Americans are
sustainable choices more likely to drive because U.S. subsidies
Public discussion around transportation encourage and incentivize driving even in
finance often focuses exclusively on how to places where walking, biking or transit are
raise and spend the funds needed to build available.89
and maintain transportation infrastructure.
That discussion leaves out an important Most subsidies for driving come in the form
element: how the allocation of the costs of of the myriad unpriced external costs of
transportation affects people’s daily choices. automobile travel (global warming, air pol-
lution and so on) for which government and
By failing to ensure that transportation users society pick up the tab. But the government
pay – in taxes, fees and prices – for the full also directly subsidizes driving in a variety
cost of their impact on transportation infra- of ways. These include:
structure, society and the environment,
America subsidizes the most dangerous, State sales tax exemptions on gasoline. Fuel
damaging and polluting forms of transpor- is exempt from general sales tax in many
tation, thereby encouraging their use. At states, representing a form of underpric-
the same time, fare policies for public trans- ing relative to other goods.90 For example,
portation often create hurdles to transit use. in states where gasoline purchases are ex-
Indeed, it is cheaper to drive to and park at empted from the general sales tax applied to
many locations around the country – even in purchases of most other goods, an individual
major cities – than it is to take transit there. buying, say, cycling equipment costing $80
might pay a 7% general sales tax on that pur-
To address the health, environmental and chase, thus contributing $5.60 to the state’s
other impacts of the current system, the way general fund. An individual paying $80 to fill
we price and the way we spend need to work the 32-gallon gas tank of a Hummer, on the
together to ensure that the most societally other hand, might pay an 18 cents-per-gallon
beneficial modes of transportation are also state gas tax, contributing $5.76 to a fund al-
the most affordable, convenient and attrac- located largely or entirely to roads. If gaso-
tive ones. To achieve that goal, our system of line is exempted from the general state sales
pricing transportation must change. tax, however, the Hummer driver effectively
PAGE 17receives a $5.60 tax break that more or less tax-intensive to drive a gasoline vehicle than
cancels out the additional contribution that an EV. Despite a widespread recognition of
driver makes to state revenue.91 the environmental and public health impera-
tives of reducing automobile use, such con-
• Income tax exclusion for commuter tradictions built into the current system of
parking benefits. Current tax policies make transportation finance have the net effect of
subsidized parking an attractive employee ensuring that the automobile is often still the
benefit.92 Every year the U.S. government most attractive option.
spends more than $7 billion to encourage
people to drive to work through the federal Penalizing electric vehicles
income tax exclusion for employer-provid- One such contradiction lies in states’
ed and employer-paid commuter parking.93 responses to the rise of electric vehicles. The
fact that EVs don’t run on gasoline means that
• Corporate income tax and other subsidies
EV users do not pay the gas taxes that are
for the fossil fuel industry. Federal and
often devoted to roadway maintenance. This
state subsidies for fossil fuel companies
has led to concerns in some states that the rise
contribute to artificially low fuel prices.94
of EVs will exacerbate the growing transporta-
According to a 2017 report, in 2015 and
tion funding shortfall.98 For this reason, states
2016 federal and state governments gave
have begun to experiment with fees on EVs,
away an average of $20.5 billion per year
including registration fees and road usage
in production subsidies to the oil, gas and
charges.99 A charge on EVs to cover their share
coal industries, including $14.7 billion in
of maintaining the roads may not in itself be
federal subsidies and $5.8 billion in the
unjustifiable, but it is not justifiable if, at the
form of state-level incentives.95 For example,
same time, drivers of gasoline-powered vehi-
the Corporate Tax Exemption for Fossil
cles are escaping being charged for their share
Fuel Master Limited Partnerships (MLPs)
of polluting the air, contributing to climate
enables companies to avoid paying corpo-
emissions, and the various other environmen-
rate income tax. In 2015-2016, this subsidy
tal and health impacts of fossil fuel vehicles.
totaled on average $1.61 billion.96 The rise
of the MLP structure over recent years has In Georgia, for example, EV owners pay
primarily served the interests of the oil and $213.70 per year as a license fee to own an
gas industry, with fossil fuel companies electric vehicle.100 The average Georgian drives
accounting for 70% of market capitalization 12,828 miles per year. If all those miles were
of MLPs in 2016.97 driven in an EV, that would represent a fee of
$0.017 per mile.101 Georgia collects a gas tax
THE TRANSPORTATION FINANCE SYSTEM of 28.7 cents per gallon, which (assuming an
DISINCENTIVIZES MODES OF TRAVEL average fuel economy of 25 MPG), equates to
THAT SHOULD BE ENCOURAGED $0.011 per mile for drivers of polluting, fossil
To encourage people to make the most soci- fueled vehicles.102
etally beneficial transportation choices, these
choices need to be the cheapest, most con- Making transit more expensive than driving
venient and most pleasant of all the avail- A similar problem occurs with public trans-
able alternatives. Often, the current system portation. The expectation that transit should
ensures that they are none of these things. In cover a large share of its own costs through
many places, for example, it may be cheaper passenger fares leads transit agencies to
to commute to work by car and find a place respond to declines in ridership by raising
to park than to hop on a bus. In states with fares or decreasing service, rather than low-
large fees for electric vehicles, it may be less ering fares and expanding service to entice
PAGE 18riders back. Given limited state spending the more road wear it causes. As a general
on transit and limitations on the ability to rule, the damage a vehicle imposes on a road
use federal funding for operating expenses, surface increases to the fourth power of axle
many agencies simply have no other choice. weight – so a vehicle that weighs 10 times as
Even though the social costs of a bus com- much per axle imposes 10,000 times as much
mute are considerably lower than those of roadway damage as a lighter vehicle.106 How-
the same commute taken by car, the price of ever, a 2000 addendum to the last major Fed-
a bus fare is likely to be significantly more eral highway cost allocation study (conducted
than what that same trip would cost if taken in 1997) found that under the spending struc-
by car. Since 1990, the cost of an average tran- ture and tax rates in use at the time, the heavi-
sit trip has increased by 143%.103 est vehicles on average pay 80% of their federal
highway cost responsibility through user fees,
Encouraging large vehicles over small ones and vehicles over 80,000 lbs. pay only half of
The cost of driving currently does not reflect their cost responsibility.107 This inequitable user
the relative costs in highway infrastructure fee structure means that since larger vehicles
expenses, pollution and climate impacts pay less than their share of cost responsibil-
incurred by different vehicle types. A 2019 ity, lighter ones therefore pay more than their
analysis, for example, found that SUVs were share, thus effectively subsidizing the opera-
the second largest contributor to the increase tions of larger vehicles. This is another way
in global CO2 emissions from 2010 to 2018, that the current “user fee” system incentivizes
second only to the power sector.105 In terms larger and more damaging vehicles, such as
of road damage, too, the heavier the vehicle, SUVs and heavy trucks, over smaller ones.
1.80
1.60
1.40
1.20
Average transit fare ($)
1.00
0.80
0.60
0.40
0.20
0.00
Figure 4: Average Transit Passenger Fares since 1990 (current dollars)104
PAGE 19OUR TRANSPORTATION FINANCE SYSTEM HURTS THE WORST-OFF
America’s transportation finance system pedestrian fatalities between 2015 and
– both the ways in which transportation 2019 found that Black, Indigenous and
is paid for and how the money is spent – People of Color (BIPOC) accounted for
hurts all of society, but particularly those a disproportionately large percentage
who are least well-off. Lower-income of pedestrian fatalities, with African
communities shoulder a disproportion- Americans, for instance, accounting for
ate share of the health and environmental 21% of all traffic related pedestrian fatal-
costs of an auto-centric transportation ities despite accounting for only 12%
system. And the nation’s failure to pro- of the population.110 Similarly, a study
vide affordable public transportation and in Southern California found that the
safe infrastructure for low-cost forms of percentage of the population of a given
transportation such as biking and walking area living in low-income households
leaves many low-income households with was the strongest predictor of pedes-
little choice but to undertake the financial trian injuries in that area,111 with pedes-
burden of owning and maintaining a per- trian crashes four times more frequent
sonal vehicle. in low-income neighborhoods.112
Specifically, our transportation system: In addition, low-income people benefit
• Disproportionately exposes low-income less from the nation’s underpricing of
communities and communities of driving and parking. In 2020, 28% of
color to traffic-related air pollution – in households in the bottom fifth of the
large part since the historical legacy country by income owned no cars at all,
of discriminatory housing and zoning compared to only 3% of households in
policies means that these communities the highest income category.113
tend to be located in closer proximity to A transportation funding system that
highways – despite these groups gener- prioritizes spending on the most soci-
ally having lower rates of car ownership etally beneficial modes and projects, and
and driving less themselves.108 that charges users based on their true
• Ensures that the heaviest financial burden societal impacts will tend to benefit those
for transportation falls on the least well- – including many low-income people –
off. In 2020, households in the bottom who travel via low-impact forms of trans-
fifth of the country by income spent a portation such as transit, biking, walking
significantly greater proportion of their and carpooling, while expanding the
income on transportation than those in number of people who can integrate
the top fifth (28.8% and 9.5% of total after- sustainable modes of transportation into
tax income, respectively), despite owning their daily lives. For some households,
fewer cars on average (1.0 and 2.7 cars per however, the increase in the cost-per-mile
household, respectively).109 of driving may create economic hardship.
Policymakers should consider and look
• Puts minority and low-income commu- to address those hardships in the design
nities at greater risk of traffic-related and implementation of a new transporta-
death and injury. A 2020 analysis of tion system.
PAGE 20A new paradigm for
transportation finance
THE CURRENT SYSTEM of transportation
financing was designed a century ago
to address a specific problem: building a “Entertainments may be taxed;
robust road network. And it did. Yet the public houses may be taxed;
same outmoded financing system remains,
while the transportation challenges the racehorses may be taxed … and the
U.S. faces today are radically different
from those of the early 20th century. yield devoted to the general revenue.
America needs a new approach to taxing But motorists are to be privileged for
and paying for transportation appropriate all time to have the whole yield of
to meet the transportation needs of the 21st
century. That approach should be based the tax on motors devoted to roads.
on two core principles: ensure that the
cost of different modes of transportation Obviously this is all nonsense. …
reflects their true impact on society, and Such contentions are absurd.”
prioritize transportation spending based
on its societal benefits. – Winston Churchill, 1925
Ensure that the cost of different
modes of transportation reflects
their true impact on society Everyone who takes any mode of trans-
port necessarily imposes costs on society
Transportation fees should reflect the overall – including in the form of road wear, conges-
cost to society tion, air and water pollution, and contribu-
tion to global warming.
The cost of every trip should ideally
reflect the cost it imposes on others and Yet the costs associated with these impacts
its impact on existing infrastructure. In are currently not reflected in the prices we
environmental economics, the “polluter pay for these various modes of transportation.
pays” principle holds that those who This means that decisions as to what form of
engage in behavior that inflicts damage transport to take for any given trip (Should I
on society should pay for the costs of that drive or take the bus? Should I drive a car or
behavior. This both ensures fairness and, an SUV? Should I drive a gas-powered car or
more importantly, discourages polluting an EV?) often wind up with the most societally
activities – making everyone in society damaging modes of transport being the cheap-
better off. est of all available options.
PAGE 21The table below includes some of the costs ing the environmental and health impacts
imposed by various modes of transportation, of our transportation system. Shifting our
with a general estimate of the magnitude approach to transportation finance away
of the cost. A mile traveled in a heavy-duty from “user fees” and thinking instead in
truck, for example, imposes vastly more soci- terms of “impact fees” can bring the finan-
etal damage across nearly every metric than a cial cost of driving closer to reflecting its
trip on a bicycle. Trips in gasoline and elec- true costs, helping to ensure that the price
tric vehicles impose similar impacts in some people pay for automobile use corresponds
categories (e.g., road space consumption and to the damage it causes, while incentivizing
crash damage) but not in others (climate and transportation choices that deliver the great-
air emissions and noise pollution). est benefits to or impose the lowest costs
on society. Such policies should ensure that
Transit trips may seem expensive when the the mode with the lowest societal impact is
total cost of providing transit is divided always the cheapest.
among those who ride. However, the mar-
ginal cost of any individual transit trip is typi- Such policies include:
cally very low. If a bus is already running,
the impact on society or the transportation • Congestion pricing: Congestion pricing
system from any individual person getting is a form of tolling that takes a market-
on that bus is miniscule (unless it creates based approach to managing congestion,
crowding that requires the transit agency to often with charges that vary by time of
undertake the cost of adding more service), day or traffic level. Studies suggest that
whereas the cost imposed on society by a a time-variable fee that makes it more
marginal car trip is high. Therefore, it makes expensive to travel during peak hours
sense to society for the price of transit trips may prompt drivers to shift travel times,
to be far lower than the cost of a car trip in travel by a different mode (e.g., transit)
order to encourage transit use. and/or reduce the total number of trips
they make.114 For instance, after it was
Making the costs of different modes of first implemented in 2003, the London
transport commensurate with their true congestion charge, whereby motorists
societal cost can be a crucial tool for reduc- pay a fee to drive in central London on
TABLE 1. SOCIETAL COSTS IMPOSED BY VARIOUS MODES OF TRAVEL
Road Road space Climate Air Noise Crash Total
wear consumption impacts pollution pollution damage cost
Heavy-duty diesel truck ****** ****** ****** ****** ****** ****** $$$$$$$
Gas-powered SUV ***** **** ***** **** ***** ***** $$$$$$
Gas-powered car **** *** **** *** **** **** $$$$
Electric SUV ***** **** * * * ***** $$$
Electric car **** *** * * * **** $$
Marginal transit trip * * * * * * $
Bicycle - * - - - - -
Walk - - - - - - -
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