Category: taxation

Transport finance in the Federal whipsaw

Lisa Schweitzer

Our Federal budget donnybrook embodies so many conflicts in American values that it’s hard to recount them all: disagreement over the Federal government’s reach versus states’ rights, a disillusionment, for whatever reasons, with social programs, the staggering costs of being at war for a decade—the list goes on and on. Buried within the politics of the budgetary battle, however, are longstanding snafus in US policy. One such mistake, and a potentially crippling one if it continues, has been a chronic inability among US leaders to help voters connect the dots between transportation investment and user fees.

In 2009, the Federal Highway Trust Fund, which pays for a sizable chunk of US transport investment, fell short of its financial commitments. Why? Because the federal gas tax which supports the HTF is out-of-date. We haven’t increased the gas tax—which is 18 cents per gallon—since 1993. That’s like you or me not getting a pay raise in 17 years! Throughout the intervening decades, the Highway Trust Fund remained in the black because Americans kept consuming more and more gasoline. We didn’t take advantage of those growth times to bump up the tax by a nickel or a dime, when gas prices were low and we could have afforded it, easily.

Now the US is now in a tricky position. Having underinvested for decades with an eroding revenue stream vis-à-vis booming demand for transit and highways, much of our transportation infrastructure is aged, obsolete, or congested. Americans understand the problem, and they want transportation investment. A recent poll done by the Rockefeller Foundation found that two thirds of their respondents from both political parties believe that transportation investment is important. But less than a third thought raising the Federal gas tax is acceptable.

Those views make for potent political one-two punch in bankrupting transport funds. Leaders want to deliver on things that Americans value, like transit. But politicians don’t want to pay the political penalty that comes with charging tolls or transport taxes to cover project costs. Thus politicians work in a constant state of temptation, a bit like college students with their Dads’ credit cards—spend now, pay later.

No recent president has fallen harder onto this political whipsaw than Obama. After the 2009 shortfall in the Highway Trust Fund, a report from National Academy of Sciences recommended a modest increase in the gas tax and a gradual movement to mileage fees. The Obama administration’s response was no way, no how.

Instead, Obama not only decided to ignore the shortfall, but to build on it. His State of the Union and budget emphasized an infrastructure extravaganza: a new $8 billion yearly investment to create a high-speed rail system via a 54,000 percent increase in the budget for the Federal Railroad Administration. Even though high speed rail companies will charge passengers once the system in place (quite a bit, if fares around the world are any indicator), Obama’s proposal had no clawback for the Federal taxpayer and no plan to create a sustainable, long-term fund for seeding the projects.

Instead, the administration simply looted from general fund programs.

We can expect the major windfalls from high speed rail to go to land owners who develop around stations—just like the real estate developers who are now cashing in on all the new land in downtown Boston provided by the Big Dig. Financing things like high speed rail out of the general fund, rather than using a pay-as-you-go system of user fees, can burden low-income Americans both by taking their tax money for transport projects unlikely to benefit them much and gobble up money from programs that serve them, like Aid to Families or veterans’ benefits (both of which felt the ax).

Obama may have avoided the ire associated with raising the dreaded gas tax, but his high speed rail proposal completely backfired on him, at least for now. Around the country, from Wisconsin to Ohio to Florida, Republican governors have made a media festival out of turning down Federal high-speed rail funds. In doing so, the Republicans have successfully portrayed the whole high speed rail plan as yet another instance of Obama’s fiscal irresponsibility and, worse, a wildly expensive vanity project.

So Obama ran a fruitless and embarrassing budgetary gambit that, had it worked, would have undermined the user-based funding principles that have served transportation investment remarkably well for about 60 years. He got chewed up like a man in a bacon suit at a dog show, and the whole debacle distracted everybody from the really innovative ideas in the budget, like a national infrastructure bank to help governments leverage private funds for transportation investment.

All that, just so that Obama could dance around the dreaded gas tax and get a few trains going? Really?

Prices, simply, work

Lisa Schweitzer

For 40 years, the US has spent billions investing in transit systems hoping to get people out of their cars. We have obdurately ignored economists who note that pricing gasoline more appropriately with a gas price floor or carbon tax would raise the costs of driving, would give us revenues to invest in public transit, and would do what everybody wants everybody else to do—stop driving gas guzzlers and stop driving so much.

Instead, we’ve built and built transit that has underperformed for years simply because driving is still so cheap. But we haven’t invested probably enough to prepare for the demand for public transit because we don’t have the revenues to do so, partially because we’ve stuck to the policy of keeping gas cheap.

Argh.

Stupid, short-term thinking.

The Financial Times has a series of very good articles recently on where we are.

Gasoline consumption shrinks vis-a-vis higher prices (what? REALLY?? HOW CAN THAT POSSIBLY BE?) as US Congress questions $2 billion in tax candy handed out Big Oil.

Gas prices spur inflation (of course they do, if everybody is getting around by car, everything from labor to other inputs are higher in prices)

And it’s not helping the trade deficit (again, basic math)

Alex Marshall being wrong about gas taxes

Lisa Schweitzer

In what I guess is supposed to be a take-down of the Reason Foundation folks, the normally interesting and reflective Alex Marshall explains that gas taxes are not user fees in Governing.

Marty Wachs wrote my favorite piece on how gas tax taxes mirror user fees about a decade ago: A Dozen Reasons to Raise the Gas Tax.

No, gas taxes are not perfect proxies for car usage. They vary by vehicle make. But in reality, gas taxes are the closest thing we have to proxying for a pollution tax or carbon tax. We may wish for policy reasons to tax gasoline consumption more than we wish to charge for system usage. For system usage, our major externalities are congestion and accidents, and while it would be really nice to charge based on mileage or time of day for either of those, I’ll just not hold my breath and wait for that public policy to develop.

Even though most analyses show that gas taxes are regressive, these taxes are pretty low in the US, and thus are pretty socially responsible even though low income people do pay proportionately more.

In other words, gas taxes are use-based taxes, and they work an awful lot like user fees, even if they are not strictly user fees. And making this distinction isn’t really as useful as Marshall would like it to be.

Ultimately, Marshall wants to use this issue to argue that car users don’t pay their own way, and so Reason Foundation people should stop criticizing Federal money for high speed rail and sidewalks. By all means, go ahead and make that argument–as if anybody really cares because it’s not like we haven’t been listening to this “cars get subsidized” argument for the last 25 years.

But come on. Do we really think that cities would be better off without surface streets paid for out of property taxes? What are bicyclists supposed to bike on without streets? What are buses meant to run on? And is it really the case that we need federal money for sidewalks? Why can’t local property taxes pay for sidewalks?

Even though gas taxes may not cover the full costs of roads, the gas tax has paid for a lot of public transit in the US and–more significantly–around the world.

It’s pretty clear that Alex Marshall really knows little about finance and budgeting and that he’s used to preaching to a choir over at Governing because he’s not bothering with research for his posts:

I went to the grocery store today and bought an apple. While eating it, I complained that proceeds from the sales tax I paid were used for other things than agricultural support programs.

Ok, again–do some research. Food at grocery stores is only subject to sales taxes in a really small number of places. All of which are evil places, like Mississippi and Alabama.*

(I suspect that Marshall lives in New York. So he’s wrong. He doesn’t pay sales taxes on apples from the grocery store, unless NYC has a special “Alex Marshall tax” on apples.)

He goes on:

Plus, once we pay the gas tax, we have no choice about where the money goes. When I fill up my car with gas, I can’t choose that the tax money goes to repair the potholes on my street instead of the brand new interchange on the other side of the state. However, once I do pay the gas tax, I can use one stretch of road or a bridge as many times as I like with no additional charge. That’s not a user fee. There’s a reason the gas tax is called a tax—because it is one.

Okay…but if you drive on that same stretch of road 100 times, you will, in fact, use more gasoline than if you drive on it once, and you will pay more tax related to your usage. No, the gas tax isn’t a perfect proxy for a mileage fee, time-of-day pricing, or a toll, but it’s not completely unrelated to use, either.

And it’s not like you have any real choice about where your user fee money goes either. There are plenty of cross-subsidies in the national park system. And why wouldn’t there be? If didn’t need cross-subsidies to run something, it’s probably a private rather than a public good. Governments exist to handle cross-subsidies and distributional conflicts.

And (again) just because a government service charges a user fee doesn’t mean that user fee covers the full costs of the program. Transit is everybody’s prime example of that: we pay fares, and most systems still require operating subsidies. But plenty of programs charge user fees and supplement services with general revenues, such as garbage collection. So whether the gas tax is a user fee isn’t really germane to what Marshall wants to say: we could undercharge drivers with user fees just as easily as we have undertaxed gasoline.

I repeat: the gas tax has served the US remarkably well for decades. It’s an easy tax to pay–drivers pay in small amounts at point-of-purchase, and even if it hasn’t paid the full freight of auto infrastructure–or any other infrastructure and even if it isn’t strictly a user fee.

I’m so tired of the “it’s not fairrrrrrrr that cars don’t pay their way but trains are expected to” whine.

Nobody among mainstream transport finance researchers actually expects transit users to pay their way based on some idea that car users somehow pay their own way. This shadowboxing about subsidies with the Reason Foundation is a waste of time, and it distracts transit advocates from doing what they need to do in order to get our transit infrastructure finance and subsidies in order: pursue a) prudential investment so that comparatively productive public transit investment take precedence over unproductive investments (e.g., light rail in Buffalo) and b) a responsible finance plan for high speed rail rather than the puff and smoke and amateurish general revenue grabs we’ve watched for the last year around high speed rail.

*With my apologies, but it is evil to charge sales taxes on food. It’s a regressive enough tax without charging on grocery store food. Some other states charge on groceries, but they rebate the tax. Still evil. Don’t do it.

Being affluent and not knowing it

Lisa Schweitzer1 Comment

Americans are, for the most part, rich. I’m rich, for sure, though I didn’t start out that way.

But one of the worst things about privilege–any type, is that it makes you blind to it. You don’t see its invisible web, holding you up. Perhaps nowhere is this more apparent than class privilege or white privilege.

Andrew Gellman, political scientist at Columbia and one of my favorite academic bloggers, writes about Catherine Rampell’s story in the New York Times

Catherine Rampell highlights this stunning Gallup Poll result:

6 percent of Americans in households earning over $250,000 a year think their taxes are “too low.” Of that same group, 26 percent said their taxes were “about right,” and a whopping 67 percent said their taxes were “too high.”
OK, fine. Most people don’t like taxes. No surprise there. But get this next part:

And yet when this same group of high earners was asked whether “upper-income people” paid their fair share in taxes, 30 percent said “upper-income people” paid too little, 30 percent said it was a “fair share,” and 38 percent said it was too much.
30 percent of these upper-income people say that upper-income people pay too little, but only 6 percent say that they personally pay too little. 38% say that upper-income people pay too much, but 67% say they personally pay too much.

Gellmana and Rampell in general agree: the gap probably reflects ignorance about population statistics. Probably true, But I also suspect it reflects my basic point: if you’ve grown up affluent and remain affluent, you are unlikely to understand that you are, in fact, quite wealthy. In fact, you are likely to argue that you are middle income, since celebrity culture of the US surrounds you with images of the super super super rich, and since you are not them, you are probably on the average side of higher income but not really rich.

A case of poor scaling in the choropleth property tax values

Lisa Schweitzer2 Comments

Note: if you are having trouble viewing the images, just click on the post title to make the whole post bigger.

I don’t know if the Tax Foundation means to be in the “fibbing with maps” category, but I have some problems with the data presentation that goes along with their new interactive tool where you can go figure out how your county stands up in terms of median property tax. I guess they aren’t really fibbing: more like just wasting our time with a map that doesn’t tell us anything new about property tax burdens.

I can’t figure out where this map originally came from, but I borrowed from the Tax Prof (who deserves a HT). But it has the Tax Foundation logo on it, so I assume they had a hand in making it. Pretty though it is, it’s not helpful.

Here goes:

NewImage

You can see from the map that the scale on the property tax is exhausted at over $2000 year for median home values. Now, if you look at that, we can see that both Los Angeles County, where my beloved LA is, and Polk County, home of Des Moines, the capital of Iowa, are both dark blue, which means the median is above $2K a year. I’m guessing LA’s median property value is a wooncy bit higher than what we find in Des Moines, so let’s see how much got collapsed into that highest strata by looking at the interactive county tool, where the interesting stories come through.

In the tables, you get the tax paid as a percentage of median home value, a normalized figure–which is what should be mapped thematically if the Tax Foundation wants to tell us something interesting specifically about taxes, rather than home values. As it is, we’re probably getting roughly the same map here, particularly for the coasts, as we would if we just mapped median home values. Or population density. It’s better to separate the effects in a choropleth presentation if you have multiple things going on.

Voila Capture5

So Los Angeles ostensibly looks bad when you look at the tax ranking. It’s 10th in the country. And OMG it’s dark blue! But then when you look at the tax normalized by median home value, the state falls to 37th–the bottom half.

The normalization by median income doesn’t make that much sense, either, unless this is median income of homeowners. It’s likely in places like Los Angeles that some property tax is passed along to renters, but it’s probably not fully passed along, so using the median for the whole population, rather than just the median for the population of homeowners, is a bit misleading there. It’s hard to know what that story is, and it likely changes from period to period as rentals relative to demographics change.

Just to close the loop, let’s look at Des Moines.

Voila Capture6

Los Angelenos and Des Moines residents are paying at the median about the same raw amounts. Yes, there is some difference, but in 2009, it’s about $2,900 for the median Los Angeleno and about $2,400 for the median Polk County resident.

Well, then. What have we got?

We have the median resident of Des Moines paying a little over 1 percent of their home value in tax, while the Los Angeleno pays at the median about 0.61 percent. Los Angeles (and other places in California) are way towards the bottom: 655 out of 790 counties and 37th out of 50 in state ranking on taxes.

Proposition 13, at work. Untaxed wealth in your home value that will continue to grow over time for those who hang on to property due to the weird rules governing assessments under 13.

The Gilt Fading on the Golden State: Richard Walker in the New Left Review

Lisa Schweitzer

The New Left Review is one of those magazines I spend way too much money for simply because the writing is always so spectacular. There are three articles well worth the price of a copy in this issue: one is a piece on Tehran, a paradox of postmodern city by Asef Bayat, another concerns the dominance of informality and the erosion of wages by Micheal Denning (free access) and Richard Walker’s The Golden State Adrift (also free access).

Walker’s piece does a brilliant job explaining why I am so worried about Califronia’s fiscal mess, covering the housing mess in particular. I would give my right arm to be able to write a sentence as perceptive and clear as this one, on the way that rich whites are hammering coffin nail after coffin nail into the state’s future:

The fading white plurality continues to exert a disproportionate influence on the state. Markedly older, richer and more propertied, the white electorate has correspondingly conservative views: for many, immigrants are the problem, the Spanish language a threat, and law and order a rallying cry. Even the centrist white voter tends to view taxes as a burden, schools of little interest, and the collective future as someone else’s problem.

Go read.


Texas’s Proposed VMT Tax

Lisa Schweitzer

The Houston Chronicle has a story up on VMT taxes:


Taxed by the mile? It may be down the road in Texas | Houston & Texas News | Chron.com

The comments from rural commentators are hot, and one in particular deserves attention: the rural driver who has a Prius. This is one of the lesser known concerns around VMT taxes or general highway tolls: there is no incentive towards fuel economy. One reason why VMT charges are on the table is institutional worry that hybrids and alternative fuels will take a bite out of gas tax revenues. Just so, VMT taxes or general tolls do not encourage drivers to save fuel per se.

The black area of the bar charts shows the amount of Federal gas tax paid for a 40-km trip with the different fuel economies associated with the two vehicles. The Federal tax does not vary by state, so the Accord and Silverado drivers pay the same amount for Federal taxes in each state, though the Silverado driver pays more than the Accord driver.

One of the key points in the exhibit concerns the difference in state gas taxes and tolls.Tolls (the yellow) are a costly part of the 40-km trip, but a comparison between Oklahoma and California shows the difference that baseline tax and toll conditions can make on what drivers ultimately pay. In Oklahoma, state gas taxes are low—about a nickel per liter—whereas the average for all 50 states is about 7 cents per liter. California gas taxes are high, and Californians also pay sales tax on gasoline, so that the American Petroleum Institute estimates that gas taxes run roughly 13 cents per liter.

California has few highway tolls: it has five tolled highways which account for about 120 miles of the state system. Most Silverado drivers in California pay just the state and Federal gas taxes—the blue and black, which amount to $1.35 in taxes for the 40 km trip, unless they are on one of the few tolled facilities.

Oklahoma has many tolled highway facilities; it has 10 different turnpikes with just under 1,000 centerline miles. Off those tolled facilities, Oklahoma Silverado drivers only pay about 80 cents in taxes for the same 40 km trip for which California Silverado drivers pay about $1.35 in taxes. On tolled facilities in Oklahoma, drivers pay about $1.45 for the trip.

Thus Oklahoma uses tolls rather than gas taxes, whereas California relies on gas taxes rather than tolls. But the tax and toll bills for both states fall within a dime of each other, though their finance mechanisms vary quite a bit. The comparison also shows what happens if you add a toll to a state where the taxes are already relatively high: those Silverado drivers on tolled facilities in California pay a lot more than those subject to tolls in Oklahoma.

Comparing the Silverado and the Accord drivers allows us to see the different driver incentives built in to highway tolls versus gas taxes. The Accord driver saves a lot of money in Federal and state gas taxes in California. What costs the California Silverado drivers $1.35 in taxes only costs the Accord driver about $0.40. This driver saves on the total fuel bill and saves nearly 30 percent in taxes. Thisis where it gets interesting. The Accord driver in Oklahoma, with its reliance on tolls rather than gas taxes, pays about 21 cents when the Silverado driverspay 80 cents, saving a little less than 27 percent on taxes in Oklahoma. This 27 percent is compared to the 30 percent savings in California. Highway tollsdo not reward fuel efficiency the way gas taxes do, and thus drivers face different incentives for fuel economy in different places.