The United States spends about $160 billion annually on highways, with about one-fourth of that total coming from the federal government. Federal highway spending is funded mainly through gas and other fuel taxes that are paid into the Highway Trust Fund. In recent years, however, the amount of money Congress has spent out of the general fund has exceeded the dedicated trust funds set aside for highway spending.
Myth 1: Highways and roads pay for themselves thanks to gasoline taxes and other charges to motorists.
Fact 1: They don’t. Gas taxes and other highway user fees pay less today than ever before.
In 1957 about 67 percent of highway funds came from user fees. Forty years later the revenue from user fees has shrunk to just 50 percent of total highway funds. Indeed, user fee revenue as a share of total highway-related funds is now at its lowest point since the Interstate Highway System was created.
And the difference is now made up by taxes and fees not directly related to highway use. These include revenue generated by sales and property taxes, general fund appropriations, investment income, and various bond issues.
This growing proportion of non-user revenue reveals a profound shift in the nature of highway funding, and has consequently led to increasing debate about the future of America’s highways. This discussion has also been fueled by the approaching expiration date this September for an important Highway Trust Fund law.
Which means that now is the time to think outside of the box and to consider privatizing America’s highways.
Myth 2: Proceeds from the federal gas tax are used to build and maintain the interstate highway system.
Fact 2: That was the promise made to taxpayers in 1956. Today, however, at least 25 percent of federal gas tax funds are diverted to non-highway uses including maintaining sidewalks, funding bike paths, and creating scenic trails.
Fuel tax revenues are now insufficient to maintain the current level of highway spending. As the Congressional Budget Office noted in its discussion of the weaknesses of the fuel tax system: It does not account for the costs of congestion, it is a fixed cost per gallon (meaning it does not adjust with inflation), and it provides insufficient revenues to pay for the costs that users impose on the system. Moreover, it is clear that the diversion of gas tax funds to non-highway projects is the biggest cause of the underfunding problem.
As Reason Foundation Director of Transportation Policy Robert Poole has explained: