Fuel Taxes: Let’s Insist on Getting Something Back

There is a growing consensus about the need to spend more on highway repair and construction and the reality of needing additional funding (tax collections) to pay for the improvements. James Oberstar, Chairman of the House Committee on Transportation and Infrastructure says, “… we need to begin the transition from the gasoline and diesel user fees to a vehicle miles travelled (VMT) fee system that charges users for each mile driven.” 

Really?  We already have a highly efficient fuel tax mechanism that incents us to buy more fuel efficient cars and trucks (a good thing) and drive less (another good thing). The VMT Oberstar refers to removes the incentive to buy fuel efficient cars – Hummers and Hybrids pay the same – and imposes yet another government bureaucracy to figure out how to calculate, charge, and collect the tax. Do we really want the government to monitor every mile we drive? The only problem with the fuel tax is that our elected representatives lack the courage to increase it in light of inflation and better fuel efficiency that reduces total fuel consumption. It is telling that the Chairman can’t even bring himself to acknowledge that it is a tax, preferring the euphemism of a user fee.

Federal gas taxes are unchanged at 18.4 cents (diesel 24.4) since October 1993, but inflation has eroded one-third of the purchasing power. The National Surface Transportation Infrastructure Financing Commission proposed a temporary 10 cent increase in gas taxes and 15 cent increase in diesel taxes to boost the highway trust fund by about $20 billion per year. Today’s tax rates pump $38 billion per year into the government coffers. Had fuel taxes simply tracked the Consumer Price Index (CPI-U), we would already be paying 27.3 cents for gas and 36.2 cents for diesel, hardly noticeable over 16 years given the wild fluctuations in fuel prices we have experienced since 1993. The NHTSA’s reported sales-weighted Corporate Average Fuel Economy (CAFE) for autos increased from 28.4 in 1993 to 32.5 in 2009, a 14.4% gain in 16 years. To make up for that and inflation, gas taxes would need to be 31.9 cents. The Commission seeks bipartisan support for increasing fuel taxes.  I say let’s go all in at 25 cents per gallon and fix infrastructure, but let’s get two things in return.

First, repeal the Davis-Bacon Act (prevailing wage law). This 1931 depression era legislation was designed to deprive blacks of good paying construction jobs. It has since become a sop to the unions that harms legal immigrants. We can’t afford $37/hour wages plus $21/hour fringes for power equipment operators in Middlesex County, MA (just one specific example – find your own favorite at http://www.gpo.gov/davisbacon). Unemployment is over 10%!

There is certainly a lot of noise in Washington about job creation. Rebuilding our highway and bridge infrastructure not only creates a lot of jobs, it improves the fundamental productivity and efficiency of the country. With our national debt soaring, we can’t just keep accepting bloated government spending projects. We need the same rigors of cost control that private companies apply to capital expenditure projects.  Total compensation of $58 per hour should provide two good jobs, not one overpaid job with Cadillac fringes.

Second, take highway spending prioritization out of congressional hands. The Reason Foundation’s Galvin Mobility Project scientifically studies congestion and proposes relief. We need to spend $533 billion over 25 years to reduce severe urban congestion plus $304 billion to address moderate and rural congestion. The total is $33.5 billion per year. The cost per delay hour saved is only $2.76, and it’s “green.” A good portion of that money is not incremental. Let’s do it, but we can’t trust our elected officials and their appointed bureaucrats to spend our money wisely. They have already proven their ineffectiveness with the $38 billion per year we give them today. We can’t just give them more money to waste. There are no “Bridges to Nowhere” in the Reason report.

I am not sure how we pry congressional hands off our highway tax dollars, but we need to find a way. Perhaps something modeled after the Defense Base Closure and Realignment Commission (BRAC), guided by scientific and mathematical models of congestion and disrepair, is an option.  Transportation practitioners, like myself, would enthusiastically volunteer to serve in an active Commission supporting infrastructure progress and fiduciary responsibility.

I had the good fortune to come into the industry in 1980, when deregulation and changes in size and weight rules unleashed an incredible decade of productivity gains (trailer size, truck utilization), cost reduction ($/mile), service improvement, and efficiency gains (MPG, empty miles) while launching some incredibly successful entrepreneurial companies and revolutionizing intermodal transportation. Nearly every regulatory initiative in the last 15 years as well as what is on the table for 2010 is detrimental to transportation cost, productivity, efficiency, or capacity. Improving our infrastructure will make freight transportation more cost competitive. It is worth the money, as long as we do it right and insist on a return on our investment.

Tom Sanderson is chairman, president & CEO of Transplace, a leading provider of logistics technology and transportation management services. Under Sanderson’s leadership, Transplace launched Consulting, International and Mexico subsidiaries, extending the company’s comprehensive services for its customers. In addition, he has led the company to achieve dozens of industry awards –including the EPA’s SmartWay Environmental Excellence Award for making significant contributions to protect the environment. Sanderson’s nearly 30 years of experience includes senior executive roles at Clicklogistics and PTCG, Inc., the company that created OptiBid. He also spent several years in the trucking industry, holding management positions at J.B. Hunt Special Commodities, Inc., J. B. Hunt Transport, J. B. Hunt Logistics (now Transplace) and Schneider National. Sanderson also has consulting experience with Mercer Management Consulting and Andersen Consulting (now Accenture). Sanderson has a master’s in business from Indiana University, has been married for 28 years and has three children.

Comments

  1. Tom,

    Great article. And very refreshing to hear someone from the transportation/logistics industry advocating higher fuel taxes. Of course, even with higher fuel taxes it is ensuring that the extra revenue is directed to transport infrastrucutre projects which is key. In the UK, fuel taxes are much higher than the USA and have risen in the last decade by more than inflation. However, none of this (extra) tax-revenue is specifically ring-fenced for infrastructure projects resulting in the same under-investment that the USA has.

    Chris Saynor, CEO, eyefortransport

  2. Davis-Bacon should be repealed because it is inherently unfair and to my mind unconstitutional, but politically it is a non-starter. Rather than increase taxes and count on our benevolent leaders to spend it wisely on infrastructure, I would prefer we privatize the highway system, which is a total pipe dream, but probably just as likely as repealing Davis-Bacon.

  3. Tom makes a number of good points. We need to do two things: 1) increase the highway fuel taxes from 1993’s levels to at least match the inflation-adjusted rate of today, and 2) make sure that those taxes which are collected in the name of maintaining and improving our highway infrastructure are, in fact, fully devoted to this critical national need.

    The second point, which speaks to diversion of trust fund monies to non-highway uses, is just as important -– if not more so — than Tom’s other recommendations. The trucking industry contributes billions of dollars every year to the Highway Trust Fund in the form of registration fees, fuel, sales and excise taxes, tolls and other assessments. These are monies intended for bridge and road maintenance and capacity increases for our nation’s highway infrastructure. The mechanisms used to collect these taxes are proven reliable and effective.

    The larger issue is how some of these funds are being co-opted for uses other than modernizing and repairing our highways. Today, about 25% of every gasoline or fuel tax dollar collected from highway users is diverted to non-highway use — projects such as heavy and light-rail mass transit, bridle paths, bicycle trails and Frisbee parks. (see http://www.freightpublicpolicy.org/2010/02/trucks-and-rails-a-new-era-of-cooperation/)

    The Highway Trust Fund and its funding mechanisms perform as they were designed. The monies are being collected and the system is equitable and effective. It ensures that highway users pay their fair share toward the costs of maintaining and improving our infrastructure.

    What needs to be addressed are those policy decisions that prevent 100% of these funds from being applied to where they are most sorely needed — our highways.

    And that’s where Congress, with a little common sense, can do what’s right for the nation and help ensure that those funds intended to fix our crumbling infrastructure are fully applied to this national imperative.

    Dave Miller, Senior Vice President, Global Policy and Economic Sustainability, Con-way

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