Transit trouble

By Jordan Fraade
July 3, 2014

Summer is the peak season for both traveling and new construction, so it’s just about the worst imaginable time for the country’s transportation funding to be on the verge of running out. On Tuesday, Transportation Secretary Anthony Foxx sent letters to the heads of all 50 state transportation agencies, telling them that the federal Highway Trust Fund would start to dry up by early August, leaving states on the hook for most of their transportation costs. The Highway Trust Fund provides anywhere from 30-70% of transit money to states, and Foxx has estimated that the average state will lose 28 percent of its federal funding. President Obama, giving a speech under the Key Bridge in Washington, D.C., plugged his own $302-billion plan to replenish the trust fund by closing corporate tax loopholes.

The culprit, says Jared Bernstein, is the federal gas tax. At 18.4 cents per gallon, the gas tax provides a majority of the Trust Fund’s revenue, but it hasn’t been raised since 1993. Over the last 21 years, a number of factors have converged — the gas tax has not been indexed to inflation, the total number of vehicle miles driven in the U.S. has actually declined, cars are more fuel-efficient than ever — to reduce the purchasing power of gas tax revenues by 28%.

Tracy Hadden Loh at Greater Greater Washington says that there’s a simple, obvious solution for the short term: Raise the gas tax. She writes, “the CBO estimates that raising the two motor fuel taxes by 10¢ would solve the problem without eliminating funding for any current transportation programs … Other issues are marginal compared to the effectiveness of simply adjusting motor fuel taxes for inflation.” Danny Vinik goes further: Not only should we raise the gas tax right away, we should index it to inflation so that we don’t find ourselves in a similar broke position a few years from now. Of course, Vinik says, this would be political suicide for President Barack Obama, who promised not to raise middle-class taxes. That’s why you shouldn’t make overbroad promises, especially when there’s already a bipartisan proposal in Congress to raise the gas tax, he writes.

Others, on both the right and the left, are already starting to look beyond the gas tax.Emily Badger, talking to Representative Earl Blumenauer (D-Oregon), notes that because Americans are driving less and doing so with more efficient fuel, the gas tax no longer serves its original purpose as a user fee. Instead, she proposes the idea of a “vehicle miles traveled” tax that charges drivers based on how far they go, not how much fuel they buy. According to Blumenauer, the technology needed to make this transition already exists — it’s simply a matter of making the driving public comfortable with the idea. And James Pethokoukis wants to freeze or abolish the gas tax and devolve transit responsibilities to states and cities. WIth a one-size-fits-all federal program out of the way, he says, local governments can “start calculating what their infrastructure needs really are — repairing existing roads vs. building new ones — and the best way to pay for them, such as state gas taxes, broader sales taxes, tolls, or  advanced congestion pricing.”

Whatever we do, though, the damage may have already been done, according toKriston Capps. Nobody in the government really wants to be the one who raised taxes, he says, and “even if construction projects aren’t suspended in the middle of the summer construction season, states may be reluctant to launch big transportation infrastructure projects. If the funding stream is shaky, the infrastructure planning will be, too.”  — Jordan Fraade

On to today’s links:

Labor
Can anything make a dent in Americans’ workaholic habits? - Bryce Covert

Barclays
New York State accused Barclays of fraud in its dark pools trading - Matthew Phillips

We Can’t Have Nice Things
Canada is being very un-Canada about the environment - Jordan Larson

Takedowns
Noah Smith sums up Austrian economics by comparing it to brain worms - Bloomberg View

In Transit
In Dhaka, Bangladesh, “there are 650 major intersections, but only 60 traffic lights, many of which don’t work” - Michael Hobbes

Charts
Which banks are most at risk of litigation costs? - FT

Primary Sources
The economy added 288,000 jobs in June, employment rate drops to 6.1% (!) - BLS

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