The Cato Institute recently published a new Policy Analysis examining highway finance and gasoline taxes. In the analysis, author Randall O'Toole argues that gasoline taxes are more like "imperfect user fees" and are poorly suited for funding today's highway and road infrastructure.  

The report suggests that federal gas taxes be replaced with user fees levied on a vehicle-mile basis. Doing so, under this analysis, would adequately fund the nation's highways, roads, and streets while greatly reducing congestion.

One point against gas taxes, O'Toole says, is that they fail to keep up with inflation and the ever-increasing fuel efficiency of cars. This results in insufficient revenue for infrastructure. "After adjusting for inflation, the amount of gas tax motorists pay for every mile they drive is only one-third the amount paid in 1956, the year Congress created the Interstate Highway System." This funding disparity results in state and local governments being forced to spend large sums from their general funds each year to pay for road improvements.

Another reason gas taxes levied by the state and fedearl governments are inefficient is they aren't directly connected to the specific roads drivers utilize. The lack of accurate price signals to let drivers know the true cost of their driving on different roads leads to congestion. Congestion in many of the nation's cities is a major economic and cultural problem. Citing research from the Texas Transportation Institute, O'Toole says "the monetized cost of urban congestion quintupled between 1982 and 2007, and though it declined slightly since then due to the recession, it is still more than $100 billion a year." He also thinks TTI's model leaves out important variables and that the true cost is almost double their estimates.

The proposed solution is to replace gas taxes with electronically tracked vehicle user fees that would fluctuate depending on specific roads and times driven. Higher prices during peak times on busy roads would ease congestion by encouraging drivers to limit non-essential trips during the busiest periods. The collected fees would be channeled directly to the entities in charge of maintaining the roads, lightening the financial burden on local governments who are often left with insufficient funding.

Read the full report here: Ending Congestion by Refinancing Highways

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