Increase in Federal Fuel Taxes is Way to Go, Report Says, but Do Need Plan for Electrics Too

Everyone knows there are issues with US highway and road infrastructure, the main issue being seemingly ever growing congestion, mostly in major urban areas, costing shippers billions in logistics costs and consumers hours in personal delays.

Supply Chain Digest Says... Short believes it is possible to create some system that actually tracks electricity consumed to recharge electric vehicles, and a tax would then be levied on that consumption. What do you say? Click here to send us your comments Click here to see reader feedback

While there is general agreement that something needs to be done to improve aging infrastructure and expand that infrastructure to reduce congestion or at minimum maintain it at current levels, the question, as always, is how to pay for it.

The American Transportation Research Institute (ATRI), led by researcher Jeff Short, published a report on this very topic in late 2017.

Before getting to ATRI's recommendation on funding US infrastructure improvements, the report first summarized the scope of the problem.

For example, the chart below from the report, based on US government data, tells the tale. As can be seen, US vehicle miles travelled (VMT) have risen dramatically since after World War II versus road mileage (total distance of paid roads), and the more recent measure of lane miles (basically the width of highways times their length.)

It's no wonder US highways are congested.

In 2016, 3.2 trillion miles were driven in the U.S. in what the Federal Highway Administration (FHWA) referred to as a "historic new record."

ATRI says the increase in VMT has been roughly the same for both cars and freight trucks. It also notes the interesting fact that the US has more than twice as many rural lane-miles as urban lane-miles, yet urban roadways account for 70% of the nation's vehicle miles travelled.

And the growth of ecommerce is likely going to make things worse in US urban areas.

"Indeed, the hub and-spoke logistics model has evolved to include smaller but many more warehouses in urban population centers," Short says. "The net effect is that these distribution facilities are both closer to large population centers to meet consumer needs for high-speed, low-cost shipping – at the same time they are at the epicenter of traffic snarls and freight bottlenecks.35 Taken together, not only is the volume of e-commerce logistics activity growing rapidly, it is increasing the most in urban areas where transportation infrastructure is severely strained."

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The report notes that to mitigate congestion, there are generally two strategies. One is to "manage" travel demand through policies and programs. Many economists, for instance, believe that this can be accomplished through "congestion pricing" strategies - though there seems little appetite for this.

A second strategy for congestion mitigation is of course to increase  thsupply of roadway infrastructure, either through investment in expanded roadway capacity, roadway improvement or through vehicle improvements, all of which can increase vehicle throughput.

Short then notes that there is in fact evidence that supports congestion relief through infrastructure investment. For instance, a one-mile auxiliary lane added to I-394 in Minneapolis in 2005 resulted in a reduction of 87,000 annual hours of delay.'

Funding Options

Most federal and state highway funding comes from taxes on gasoline and diesel fuels. What many do not know is that those taxes are not actually collected from individual fuel stations where consumers and truckers get their fuel.

Instead, taxes are collected by the US Treasury from approximately 1,300 major fuel distributors.

That makes the collection of these taxes highly efficient. In fact, the report says, the cost for collecting federal motor fuel excise tax revenue is just 0.2% of the revenue collected.

As most know, the federal motor fuels tax of 18.3 cents per gallon for gasoline and 24.3 cents per gallon for diesel have not been raised since the early 1990s. Conversely, many states have increased their fuel taxes, especially in the past few years – though 11 states, including Texas, have not increased state fuel taxes since the federal fuel tax rates were last changed.

Taxes based on gallons of gasoline or diesel gallons sold are also under pressure from two directions. First, continued improvements in mileage rates means fewer gallons of fuel are used per mile driven. Second, the expected growth in electric cars and trucks will mean many vehicles will not consume any traditional fuels at all.

That has led many to propose a vehicle miles tax, in which cars and trucks are somehow taxed based on the number of miles each vehicle travels. However, the report says that to implement a VMT system nationally, it would require a bureaucracy almost as large as the IRS itself to track and enforce miles driven tracking and tax payments.

The creation of such a new bureaucracy would be opposed by many on general grounds, and the cost of that bureaucracy would eat up a high percentage of the tax dollars versus a tax on fuels as is in place today.

The report also looks at other funding options, such as tolls and use of general us funds for infrastructure.

In the end, ATRI believes an increase in federal fuel taxes are the way to go. It easily scores the highest among six alternatives evaluated against the criteria of administration, efficiency, equity and effectiveness.

"A critical first step in improving federal transportation revenue streams is to update antiquated tax rates to reflect current transportation needs and to index the tax in some manner to address inflation," the report says – perhaps increasing the current federal taxes by 20 cents per gallon.

But isn't the rise of electric cars a threat to this model?

Yes and no, Short said in an interview with Supply Chain Digest.

First, the transition to electric vehicles is likely to take some time, Short said, and an increase in the fuel taxes now would generate a lot of additional revenue immediately.

Second, Short believes it is possible to create some system that actually tracks electricity consumed to recharge electric vehicles, and a tax would then be levied on that consumption.

ATRI also recommends that the US streamline the planning and construction process to lower costs and deliver infrastructure faster.

In conclusion, Short says "This report corroborates that an increase in federal transportation revenue can efficiently occur if the federal government can develop a multi-faceted, equitable and long-term funding program."

The full report can be found here: A Framework for Infrastructure Funding

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