How to Fix Transportation Woes? Cut Federal Spending

July 21, 2014

Chris Edwards, director of tax policy studies at the Cato Institute, argues that lawmakers on Capitol Hill need to cut federal highway spending.

The Highway Trust Fund (HTF) will soon run out of money. The federal government spends $53 billion annually on highways and urban transit, yet the HTF takes in only $39 billion. Politicians in Washington have different ideas for how to close that $14 billion gap: President Obama wants to fund it with corporate tax revenue, while Senators Bob Corker (R-Tenn.) and Chris Murphy (D-Conn.) want to raise the federal gas tax.

Despite Senator Corker's claims that the gas tax would create new jobs, federal spending always generates low returns, and transportation spending is inefficient.

  • Federal aid is not based on the demands of the market, so investments are misallocated. For example, growing states like Texas need higher levels of investment, yet Texans pay more into the system in taxes than they receive in federal spending.
  • The system encourages waste of funds, because federal highway aid has only a small state matching requirement, making federal funds appear "free" to states.
  • Federal aid also increases costs. According to the Joint Economic Committee, Davis-Bacon labor rules, which require federally funded projects to pay workers high wages, increase highway project wages by 22 percent on average.

Edwards writes that the solution to the HTF's funding gap is to cut spending by $14 billion. He urges lawmakers to end mass transit and other non-highway funding, as today, one-fourth of HTF spending goes towards non-highway purposes. Cutting transit aid, he projects, would encourage cities to privatize their transit systems.

Similarly, cutting back on federal highway aid would encourage privatization and the use of public-private partnerships. Privatization works, Edwards says, because when private businesses take risks, their profits are on the line, meaning that projects are more likely to be constructed and completed efficiently. Various studies have confirmed that public-private partnership projects are more likely to be completed on time, and on budget, than government projects.

Source: Chris Edwards, "Cut Federal Highway Spending," Downsizing Government, July 8, 2014.

 

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