CWL 2010 #4 Pricing Driving

I've been dreading writing this one because I fear it will be viewed as some sort of "War on Drivers" kind of thing. I'm frequently a driver these days, so I certainly don't want to declare war on myself. But, to be frank, if we're going to get more cyclists we're going to have to have fewer of something else (or more total trips - it is true that bike sharing systems create trips where people would have just stayed at home, but that is really a niche). The best place, from a social cost standpoint to get cyclists from is the current pool of drivers. One way to do that, without it being some sort of "war on drivers," is to properly price the cost of driving, which would encourage some fence sitters to save money by biking, walking, taking metro, etc...There are several ways we subsidize driving that could be addressed.

The gas tax: The federal gas tax has been stuck at 18.4 cents per gallon since 1993. With inflation that means we've been cutting the tax every year. The Federal Highway Trust Fund, which gets ~2/3rds of its revenue from the gas tax, has recently been running at a deficit, and our roads have billions of dollars of deferred maintenance. Just indexing the current tax to inflation would go a long way toward solving the problem, but if we want the gas tax to continue to fill the gap in the FHTF, it will probably need to be increased. On the one hand, 81% of people say they'd pay more taxes to repair and upgrade our infrastructure, but almost the same percentage said they'd oppose an increase to the gas tax. So that's a mixed message.

Furthermore, you could make a case that the tax should be increased to cover the environmental costs of mining, shipping, refining and burning gasoline. Some have even argued that the gas tax is a fair way to pay for the Iraq war. An analysis done in 1998 showed that to capture the full cost of gasoline, the tax would need to be raised by several dollars per gallon. That is probably too extreme for most people.

Personally I'd like to see us move to a Vehicle Miles Traveled (VMT) tax to cover the costs of roads and infrastructure, with a multiplier for car weight; and a gas tax to cover some clean air, clean water and alternative fuel initiatives. But that is probably not going to happen.

Carbon tax/cap - This might seem like the same thing as a gas tax, but it would also put a price - though to a far lesser extent - on driving an electric car, since much of our electricity is from coal. CO2 is a major cause of global warming, burning fossil fuels is a major cause of CO2, and driving is a major source of burned fossil fuels. Drivers are not asked to pay for the economic impact of this process, making them a free rider. It is not unfair to ask them to cover this cost. Unfortunately, the best chance for pricing carbon in the near future probably died with the Democratic supermajority and so I'd be surprised if there were a tax on CO2 production anytime in the two years.  There is some hope though.  Matt Yglesias recently wrote that instituting a carbon tax would be very similar to a proposed VAT tax, but with the advantage of combating global warming. Maybe that will happen if the tax code gets dramatically rewritten to deal with the deficit. Either way, putting a price on carbon would further price the social costs of driving, and in so doing incentivize more people to bike.

Congestion pricing - The number one cause of congestion, I like to say, is too many people driving. London instituted a congestion charge zone in 2003. While it's clear cycling increased in London during the period of congestion charging, it also increased everywhere else in the world. So how much the congestion charge contributed is hard to say.  But some of the money raised by the congestion charge was invested in cycling infrastructure and it stands to reason that if driving into downtown were made more expensive, then biking would be more appealing. And the hope is that the total savings in time, pollution, safety etc..for people in the area in general would compensate for the reduction in convenience for those who decided not to pay to enter the zone. The London system has been effective in reducing pollution and collisions, improving the flow of traffic and raising money for transit, walking and biking. There is every reason to think it would do the same in DC.

Parking - The final way that we underprice driving is with nearly free parking. My parking permit cost me $15. For that I can park on a District-owned road in front of my house every single day. That is a bargain. My neighbors rent a space to zipcar for several hundred dollars a year. Metro charges $200 to rent a bike locker - and I can park almost anywhere within my ward for free. There is already a proposal to double the cost of a residential parking permit, which seems like a pretty reasonable step. And I like Topher Matthews' idea to charge even more for second, third, etc... cars. We should also pursues goals that reduce the amount of free parking that is created by instituting more performance parking programs, better zoning with respect to parking (no minimums and more reasonable rules), or even ending the practice of treating parking at work as an untaxed fringe benefit.

None of these ideas are meant to pick on drivers. These are not attempts to throw barriers up and punish anyone. The goal is only to accurately price the cost of driving. In fact, the congestion charge and performance parking should make driving better - even as it becomes more expensive. In other words, drivers will get something for their money.

Finally there are those who will make a fairness argument. That cyclists should also pay for the roads and parking that they use. I'd first note that we already do. But if somehow gasoline/VMT taxes were raised to fully cover all the costs associated with driving and that were no longer true, I'd still argue that we don't need, or even want, things to be fair. We want fewer people to drive. VMT reduction is a goal of almost every government body in America. We want more people to walk and bike for health reasons. We want fewer people to drive for safety reasons. We want to burn less gasoline for national security, environmental and economic reasons. So with all of these reasons to favor biking over driving, it's OK that things be "unfair." In fact, making things fair is in exact contradiction to our goals. We charge people a great deal to partake in the hobby of smoking. More than we do for the hobby of running. Is that unfair? Most people don't think so, because we want fewer people to smoke. We also want people to drive less, so it's OK - reasonable even - to tax that activity more.

Raising the cost of driving would certainly do a great deal to increase the number of miles bicycled - while achieving larger goals as well. Some increases are absolutely necessary and others would make sense.

photo by Will Cheyney

Comments

[darren]

Don't forget pay-as-you-drive insurance. It's a true win-win, as it reduces driving by making more of the costs variable, but results in a savings to drivers.

[Early Man]

Don't call it a carbon tax--call it a "carbon dividend." Tax has the nasty implication that it goes to fund government waste. Instead, use any revenue raised from charges to carbon to reduce payroll taxes. That way, people paying more at the pump will be compensated immediately with more take home pay. You could even include it on payroll stubs: "Carbon Dividend + $13.54." If you are not feeding a beast, then that is more money in your pocket. The people most hurt by this--the supposed welfare mothers driving Cadillac Escalades. Republicans will love it!

[Fred]

The gas tax needs to go up - but unfortunately that is a political nonstarter in the U.S.

[Jim Titus]

Of course since this is a wish list none of it has to be politically feasible.

I'd say that cycling organizations should never suggest that we are indifferent about whether things are fair. Sometimes the only two options that seem to be on the table make us choose between efficiency and fairness, and we may have to choose efficiency. But cyclists are "the litte guy" and fairness must always be uppermost in our minds.

Within the realm of the doable, I'd like to see Maryland pass a statute to the effect that 10% of any general fund or sales tax revenues appropriated to state highways must be dedicated to bike-ped. The same might apply to localities, but separate facilities with their own budges are less necessary than training for the traffic engineers.

[Geof Gee]

Virtually anyone that ever brings up a free market argument should support a congestion tax. There is only 20+ years of literature on it and it follows directly from the efficiency based argument.

[charlie]

And 20 years of free market thinking has got us what -- the worst recession since 1930?

VMT is a big excuse for IBM and Xerox to fantasize about running those computer systems.

The easiest plan for the gas tax is change it from a cents per gallon tax to a percentage change. Indexing it to inflation is stupid because it getting more expensive than the base inflation rate.

In insurance thing is a big deal and will help people to drive a lot less. I drive about 4500 miles a year and get a great $10 discount for that. My insurance should be a lot lower.

Getting to parking pricing is very tricky. Lots of unknown side-effects. As a general rule yes, the more expensive you make parking the less people own cars. But what you're trying to do is reduce car use, not attack car-ownership. Own a car and drive less.

[darren]

VMT has some merits if deployed with different rates for off-peak/peak to reduce congestion, make better use of road capacity. And there's the argument that someday, our vehicle fleet will be too efficient to generate enough revenue to pay for the roads (those that say that day has already arrived are obviously quite wrong)

But on balance, i'm a much bigger fan of an increased gas tax. Our national goal shouldn't be just to fund the system, or even to get people driving less. It's to use less gas. And VMT bears no relationship to controlling speed, maintaining a well-running car, non-auto use of gas, requires a whole new infrastructure of monitoring and payment, or incenting people to buy fuel-efficient vehicles. Inventing variables like WC suggests (weight multipliers, displacement limits, etc) as proxies for what an effective gas tax could directly impact just create inelegant regulations ripe for the workaround.

The primary benefit to VMT many cite is the behavioral impact of drivers getting a discrete bill for their driving. Why not restructure the gas tax scheme to collect in this manner?

[washcycle]

darren, I support a VMT and a gas tax. We have to move to a VMT eventually, or else those in electric cars will start to be free riders. We do need some way to pay for roads.

[darren]

WC -- yes, eventually. But that eventuality shouldn't be (IMHO) until mass-marketable electric cars are being produced (way off), a grace period of several years where electric car buyers ARE allowed to be free-riders (to shorten the payback horizon), charging infrastructure is relatively common, and there's a predetermined threshold that demonstrates that the total vehicle fleet is tipping to electric (note that hybrids currently comprise a miniscule portion of the fleet, demonstrating how long it takes technology to pervade)

[washcycle]

Jim, I think when we talk about fairness we either need to redefine fair - it is fair for cyclists to park for free but for drivers to pay because....or we are left working on their terms. The first option gets very complicated and the second is a loser for us. The third way to ask why fairness matters, and I think you pull the rug out from under them when you ask that question. That really is all they have. Opposition to bike lanes comes from giving so much space to such a small population because it's not fair (even though we only have 50 miles of bike lane on 3500 miles of road) etc... Take away the fairness argument and you leave them with little. It's like saying it isn't fair that those who go to the Naval Academy get to go for free but those who go to Maryland have to pay. The response is, that it's OK that it's not fair, because we want the best and brightest at the Naval Academy (and they give up some freedom, and take some risks, to go there).

[charlie]

I was going to let it go: but here's the logic: bikes are ok because the owners pay other taxes, electric cars are bad because they don't pay gas taxes.

Endless ways to tax electric cars: property tax, tires, consumables. No need to re-invent the wheel.

And the rhetoric about the USNA is pretty weak -- I thought they gave you a free eduction because you had to commit to a number of years of service.

Attacking fairness by saying "bikes are different" is fine, but the real problem is going after the same pots of money. hypothecated taxes taxes build entitlement, and the real answer is just admit the era of the gax tax is over, and we need gas tax revenue to be treated like all other revenue now (partially done in the 90s for deficit reduction)

[Jim Titus]

I guess I like the very complicated explanation. But defining fair is not a bad thing. Fair does not mean that everybody has the same deal. Fair means a system which reasonable disinterested people would agree to be an equitable way of distributing benefits and burdens.

My impression is that few people think that it is unfair to give bikes free parking or free use of the roads. (The red light thing does bother people, but that is not our topic for today.) The misinformed think that driving covers costs--it may well be within our ability to get the facts out.

But of course you are right that people resist the idea of incorporating bad externalities into prices. Our misfortunte that government is perceived as being a monumental wealth transfer from workers to the idle. So people who do not want to feed the welfare state end up opposing price-correcting taxes.

Charlie: With tolls making a comeback, and electronic enforcement of some traffic violations seeming almost like a user fee rather than punishment, I think there is some chance that driving will continue to pay a fraction of its costs on a per mile basis. The main problem with the gas tax is that people cross borders to avoid it, whenever it comes close to paying the cost of driving.

[Christopher Fotos]

Two quick points that don't do justice to this long, thoughtful post, but I wanted to plant a flag and don't have much time: 1. I'll just stipulate that any kind of "carbon tax" is pointless, as is fairly clear now for those with eyes to see and will become increasingly clear in time. 2. Among many other things, a higher gasoline tax, if not a war on drivers, is definitely a war on the mobility of non-urban America.

[Christopher Fotos]

Oh damn, and I forgot one other thing: An enormous amount of goods is moved by long-haul trucks; any tax you impose on the system that moves that stuff around will needlessly hike those prices and penalize both consumers on the one hand and producers on the other. Bad policy.

[SJE]

I don't think its a "war on drivers" to ask them to pay for what they use, any more than it is a "war on teenagers" to ask them to pay for gas when they borrow the car.

The US touts a lot about the free market, but has lots of subsidies that lead to inefficient allocation of resources. Ending these subsidies is good fiscal and economic policy.

As for the "long haul trucks": you can raise your prices to reflect the real costs without having people move things on bikes and donkeys, etc. Most countries have MUCH higher gas taxes, and still have trucks etc. They use smaller trucks on the shorter routes than what you see in the USA, which saves a lot. They also focus on better logistics management.

[washcycle]

But keeping gas cheap is a penalty to long haul railroads. Why should we favor trucking over rail?

I would also argue that raising the price of goods to pay for the roads that move them is not a needless expense, but rather the way that the world works. If you don't do it with a gas tax, you'll have to tax something else like income or consumption which pretty much has the same effect. Why is a user fee worse policy than charging non-users?

Finally, why is a carbon tax pointless? I have eyes that see, but I don't get that one.

[washcycle]

charlie, in my scenario, roads would be paid for entirely with gas taxes. So, in that case, cyclists actually would be free riders.

Electric cars don't have many consumables, and it will be a steep tax on tires if that's how you plan to pay for roads. You don't have to reinvent the wheel to make a VMT work. When you buy gas, your odometer transmits new mileage to the gas pump and the tax is added to your gas bill. It's pretty simple and is already in testing in Washington State. [By the way, as an engineer I'm a big fan of reinventing the wheel. Even when there's no need to, it's a lot of fun. EZ-Pass reinvented the wheel, and I think it's been a great improvement.]

[Riley Casey]

The inducements to commute by car from distant suburbs and to haul freight by truck rather than the far more efficient rail are simply one more in a long line of thumbs on the scales of the economy. I do all sorts of things to reduce my need for health care and yet my health insurance is expensive and difficult to obtain. I commute to work and do the bulk of my shopping by bike and yet a significant part of the cost of maintaining roads and paying for the military forces that protect a huge oil economy infrastructure comes out of my unavoidable income taxes rather than the fairly minimal gasoline taxes. I am all in favor of letting the taxes reflect the actual cost to the government of maintaining the systems and services that incur those costs rather than the distortions that generations of lobbyists have tilted the system with. I would much rather pay for the cost of maintaining a road that sees bike traffic than SUV traffic and I would much rather NOT pay insurance premiums for the kinds of illness that a severely overweight smoker is likely to face. I can't really have those things of course but railing against the broken system is cathartic. ;-)

[darren]

Logistics providers and the industry that uses them are actually in favor of pricing mechanisms that deliver congestion reduction and maintenance of the system. Travel time reliability is king in logistics, and even just relying on gas tax to cut discretionary travel would yield gains.

Also, gas tax would not hit road freight quite as hard as drivers, as much more of their contribution comes through other fees, and diesel fuel is already taxed at a different rate than gasoline (currently perversely higher, could be kept static)

Finally, to the point that taxing over-the-road freight is "pointless" -- besides the freight/truck algebra, one of the reasons for the death spiral of local businesses (main street, local farms, all that touchy feely stuff) is the artificially low cost of getting your big-box blueberry blintzes from China rather than locally, enabled in part by the brutal speed and efficiency of the supply chain. tip the scales a bit, and maybe Olsson's could have narrowed that price gap to Amazon a bit.

[darren]

re: "definitely a war on the mobility of non-urban America."

No way. Say we QUADRUPLE the gas tax. That would theoretically raise the price of gas $0.55 a gallon, or a price rise of a bit above 20%. Phase in that increase to allow the noble suburbian to trade in their suburbans, or in the spirit of liberty, just keep on doing what you're doing, but now paying your fair share.

And that additional tax may not even hit your pocketbooks -- will the imperfect supply market of oil producing nations actually allow that price hike to actually be borne out at retail?

Rural/exurban folks can still move about exactly as they did before. Or, perhaps they'll demand other mobility options, or reexamine land use and preserve their small-town commercial centers, or their property taxes will go down because no one wants to live out there anymore.

But whatever happens, i'm tired of subsidizing their choices, choices that yield no benefit to anyone but them.

[Jim Titus]

In Maryland, about 6.5 percent of the sales tax and corporate income tax go into the state tax fund. (Maryland charges a 23.5 cent state gas tax in addition to the 18.5 cent federal tax. A 10 or 25 cent/gallon increase could eliminate the corporate and sales tax subsidy, depending on whether you view the 6% sales tax on cars that goes to roads as a diversion of the sales tax revenue or as a user fee. So in Maryland, raise the gas tax 25 cents/gallon and drivers will be paying for the cost of state highways.

I'd like to see localities provided with authority for a gas tax to fund local roads. They would not use it to full effect out of fear of losing gas sales to neigboring jurisdictions.

Note that whatever objections some people may have to roughly 5 cents/gallonmg of the gas tax going to mass transit, it is far less than the road subsidy from sales and corporate income tax.

[SJE]

The argument about flow through costs of higher gas taxes that, e.g. raise the prices for trucking, ignores the EXISTING costs that are inequitably borne.

If you raise taxes on gas, the price of goods shipped by truck would rise. There would be a general increase in the costs of goods. However, this increased costs ignores the savings at the othre end. This is because the average consumer is also paying for the roads through other taxes that are diverted to subsidize the roads.

Thus, a gas tax that captures its real costs should permit a reduction in the other taxes, and so the consumer (as a class) is financially no better or worse off as a class. More importantly, however, eliminating subsidies reduces the inefficient allocation of resources, and so the consumer should be a net beneficiary.