It’s not much in the headlines this week, but thanks to President Donald Trump’s war with Iran, the Strait of Hormuz remains practically closed. Like clockwork, the result will be many more months of escalating oil prices. During a critical election season, everyone is focused on the price of gas, a totemic number that clarifies people’s political attention.
In response, politicians at every scale are making hay out of our transportation funding structure, the way in which our society pays for roads and other vehicle infrastructure. For example, in Minnesota, the Legislature slashed vehicle tab fees, one of the only big policy moves during this year’s session. At the state and federal level, elected officials are trying to cut gas taxes.
Related: Rising gas prices pique interest in EVs
But at some point, someone has to pay for roads. Like it or not, there are many billions of dollars of maintenance backlog in our expensive and aging road system. Meanwhile, elected officials and transportation engineers still routinely call for expanding highways by adding lanes, interchanges, or even by bringing new ring roads into the system. All of this is liability to future taxpayers, and it begs the question: How should our society pay for all of the asphalt, steel and concrete?
What follows is a quick explainer.
The gas tax
Gas taxes have long been the backbone of our road funding system. However, for well over a generation this revenue source has been fading away. There’s a common misperception that the gas tax pays for the bulk of our road system, and there’s never been a time when that is less true. The federal gas tax of 18.4 cents per gallon hasn’t been increased since 1993, and subsequent inflation has eroded that to less than half of its original purchasing power.
Meanwhile, the road system keeps expanding, and the bill is coming due on much of the country’s mid-century highway system. The result is that the federal Highway Trust Fund — the dedicated pot of money funded by the gas tax — has been insolvent for almost 20 years. Instead, departments of transportation keep getting “bailout” packages from general treasury dollars.
At the state level, your mileage may vary, but the picture is largely the same. Few politicians are brave enough to increase gas taxes to cover costs. (Minnesota DFLers merely indexed the state’s 32-cent gas tax to inflation in 2023, and it still took admirable courage.) For example, this week, despite repeated proclamations of crumbling asphalt and faulty bridges from their governor, Oregon voters rejected a state gas tax increase by an 80-20 margin.
The unpopularity and inadequacy of gas taxes mean that much transportation funding comes instead from a hodgepodge of general sources, scarce money that’s fiercely fought over in Congress and state legislatures. It also means that our road system is falling apart.
(This is not to mention the impending market share of electric vehicles, which do not pay any gas taxes at all.)
People will likely miss the simplicity of the gas tax, but its heyday has already come and gone. When you’re standing at the pump and watching that number go up, know that the extra money you’re putting in your tank is not even close to covering the cost of the highways, overpasses, guardrails and asphalt you depend on.
Taxing by distance
The inevitable diminution of the gas tax means that it’s only a matter of time until charging by the mile becomes the predominant funding scheme. This will likely happen first in the rest of the world, and eventually in the United States. For example, always yearning for reliable revenue (because the state lacks a sales tax), Oregon has dabbled with VMT tax technology, though the effort is still voluntary and hasn’t managed to fill the fiscal need.
For that to happen, however, we will have to solve some challenges around regulation, enforcement and privacy technology. Much like scofflaws modifying license plates to evade New York City tolls, people will try to hack or evade VMT taxes. Governments will need some way to enforce their driving mileage fee mechanism; it seems like a solvable technical problem.
Many people cite privacy concerns — justifiably, given federal agents’ recent behavior in Minnesota — but there will have to be a way to track mileage. New cars are loaded with electronics and provide reams of information to car companies. (As usual, Tesla is the worst offender.) As life-saving speed cameras and other geo-coded technologies become normal, and infrastructure revenue continues to evaporate, eventually a mileage tax solution will emerge.
Taxing by weight
If and when that happens, I hope that it factors vehicle weight into the equation. Probably the fairest way to tax vehicles would be to assess them by weight. Minnesota’s annual vehicle tab fees use purchase price (i.e. value) as a basis, but at least 13 other states including Wisconsin combine this with vehicle weight.
This makes sense because road damage is directly correlated with weight. The heavier the car, the more it destroys the road, and the relationship is exponential, not linear. Washington, D.C., even uses vehicle weight as a basis for parking permits, incentivizing smaller cars through a fee structure.
Even if weight-based taxation is logical, people who idolize large vehicles won’t like it. The U.S. auto industry has redoubled its reliance on SUV and truck sales in the last few years, to the detriment of climate action and safe streets in American cities, and this kind of equitable policy change would likely receive a lot of pushback.
Externalities
To sum it up: Theoretically, the best way to pay for roads would be by tracking everyone’s use of them and scaling the payment by weight and distance. In this scenario, people driving small vehicles rarely would pay the least — driving an electric scooter around town would essentially be free — whereas a super-commuter in a tricked-out Silverado would pay a heavy toll.
In a sense, everyone would be treated like the trucking industry is today, with greater weights resulting in higher fees. This system would be just and equitable, and would also give consumers more choice than they currently have. For example, a Japanese Kei truck would be an amazing investment.
But even a straightforward system like this would ignore what economists call “externalities,” costs imposed on society through things like noise pollution, tire particulates, traffic congestion and the erosion of safety for others. In a perfect world, the government would put its finger on the scale and tax harmful vehicles more than others.
Related: This supersized heat pump will heat and cool a whole St. Paul neighborhood
EVs, safer vehicles or shared-use technologies would be incentivized, for example, while polluting and/or dangerous vehicle types would pay a penalty. Ideally, gas taxes would pay for transit, and congestion pricing would be the norm in urban areas.
In the real world, however, most state and local road funding policies are shockingly backwards and getting worse by the year. The new federal transportation bill, just released this week, is proposing to tax electric vehicles at a higher rate than ICE engines.
Minnesota’s graduated license tab structure is actually a good system, and it’s been neutered, albeit temporarily. Elected officials in many states are proposing cutting gas taxes, instead of raising them to levels that would actually fund the infrastructure that drivers need.
All this means that actual budgets for road maintenance are being obliterated, and the potholes speak for themselves. As a metro area that’s actually experienced a highway maintenance disaster, current events do not bode well for the state of our national transportation system. Bridges don’t last forever. Eventually, someone has to pay the piper.
Related
