NCPA - National Center for Policy Analysis

Ending Congestion by Refinancing Highways

May 23, 2012

For more than 50 years, the gasoline tax has been the primary source of funds for federal and state highways.  Thanks to the gas tax, the funds to build, operate and maintain these transportation facilities have largely come from highway users and not from taxpayers in general, says Randal O'Toole, a senior fellow with the Cato Institute.

Yet the gas tax is a highly inefficient way to fund highways because it creates perverse incentives for roadway infrastructure, along with suffering from a number of other shortfalls.

  • First, the federal gas tax and most state gas taxes are not indexed to inflation, so while highway construction costs increased by about 10 times between 1956 and 2006, gasoline taxes only increased by five times (from 8.4 cents to 47 cents a gallon).
  • Second, cars today are far more fuel-efficient than they were in 1956, such that vehicle efficiency increased by 65 percent between 1956 and 2009 (14.4 miles per gallon to 23.8 miles per gallon).
  • Third, the gas tax does not account for the fact that some roads cost more per mile of driving than others (for example, a highway is more expensive to build than a rural road).

These issues speak to the inherent difficulties in operating a gasoline tax that is, at best, a suboptimal attempt at a user fee.  Instead, Congress and the states should take action to transition from gas taxes to more efficient vehicle-mile fees.

  • With vehicle-mile fees, users pay for just the roads they use, when they use them.
  • The fees can be adjusted to account for inflation, and because they are collected per mile of driving, they avoid problems with fuel-efficiency or the type of fuel that powers the automobile.
  • In full implementation, a GPS device could keep track of how much each vehicle used roads owned by cities, counties, states and private parties, resulting in separate charges for each.

As an important side benefit, congestion at certain times and on specific roads could be addressed with this system through a comprehensive price structure.  Road users could be encouraged to find alternative routes, thereby capturing market forces in an area that has previously not known them.

Source: Randal O'Toole, "Ending Congestion by Refinancing Highways," Cato Institute, May 15, 2012.

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