August 21, 2009

Input Taxes, Output Taxes and Electric Vehicles.

From ArsTechnica Ford's plug-in hybrids will talk to electrical grid This is for charging the cars at the best time of day (night), but in theory could be extended to a means for charging cars for electricity different than regular electricity, in other words, a mechanism for replacing the gas tax with a different energy input tax.

Fuel (or electricity) taxes are input taxes. Theory suggests it would be better to tax outputs (actual miles traveled, by time of day and location). This would send a more direct signal to consumers about the costs they impose on the system and others. The difficulty is that this may be a much more difficult enterprise from a variety of points-of-view (collection costs, political acceptability, and even technology (GPS shadows etc.). As a second-best, input taxes are not too bad, it is better than a tax totally unrelated to usage, and the 20-30% reduction in collection costs may well make up for any inefficiencies.

June 26, 2009

Comments on Long-Range Funding Solutions Symposium

On June 24th, MnDOT held a "Long-Range Funding Solutions Symposium" to examine issues associated with the long-term funding of transportation. I was asked to be a discussant. These are my comments in extended form.

Thank you for giving me the opportunity to discuss the topics raised today.

First, MnDOT has identified $50 Billion of unfunded "needs" for additional resources of which 86% are for the purpose of "mobility" over the next 20 years. I am not clear as to how these needs were identified, but several points should be kept in mind. First, this is a slow-growing region (and outside the Metro a declining state). It has 5 million people now, and at best is growing at about 1 percent per year. Second, per-capita Vehicle Miles Traveled has been flat for almost a decade, and overall VMT growth has been flat for about half a decade. There are several reasons for this, most recently recession and high gas prices, but I think the most important is market saturation. if speeds are not growing (because we have maxed out the network given current technologies and face diminishing marginal returns to new road construction), and people have finite time, they choose not to devote additional time to travel (and thus distance). Fortunately, since the I-35W Bridge Collapse, MnDOT has adopted a "fix it first" approach, so that system preservation, operations, and maintenance get the largest share of the existing budget, and comprise the first funded element of needs.

We cannot know what "needs" for mobility are if we have an unpriced (or underpriced) transportation system. People will always over-consume if they are subsidized, and people do not presently pay for the congestion externality they impose on others. Once we have something like marginal cost pricing (or a second-best version thereof), we can determine which links generate more revenue than they cost to operate and maintain, and that will signal where capacity should be added, where the benefits of added capacity outweigh the costs.

Another way of thinking about what $50 billion means is that Minnesota is a state of 5 million people, so that amounts to $10000 of new construction for each resident of Minnesota (because this is above and beyond the funded part which takes care of preservation (we hope)). Over 20 years, $10000 per capita is $500 per year, or about $0.50 per trip. But that $0.50 per trip is not to pay for existing infrastructure, that is to pay for new infrastructure those travelers may or may not use; or if we were to charge users, we would be looking at 10 to 100 times as much per trip, as the new capacity built for $50 billion will serve only 10% to 1% of trips, most trips will continue to use pre-existing infrastructure.

We could also talk about mobility vs. accessibility, and why is it important to enhance mobility, but that is another long discussion, and the reader is referred to the Access to Destinations study for details.

Attention is a scarce resource, spending time on non-starters like $50 Billion in "mobility" needs detracts from real problems with existing infrastructure.

In short, the $50 Billion suggested comprises Wants not Needs. (as Jim Erkel calls it the Rolling Stones theory of transportation finance ... You can't always get what you want, but you get what you need).

Second, we need to re-examine the institutional structure of transportation funding and administration. We should consider a public utility model where a transportation authority or utility with independence from the legislation and executive branch of government determines how much is required to maintain (and as necessary expand) the transportation system, with oversight from a Public Utility Commission or similar. This would resemble how Natural Gas and Electricity and Water and Sewer in many places are currently delivered. Like those, transportation is a utility that has costs that users should bear as directly as possible. The user fee notion would be embedded into the governance structure of such a transportation authority. The British might call this a Transportation Trust. We could consider how this is organized at different levels of government (keeping state and local separate or bringing them together?)

Third, Value Capture has not been fairly characterized in the presentation made today. If we do not have road user fees, transportation creates value for land-owners. (If we do have marginal cost user fees, a closed system, and invest the revenue in transportation, making some simplifying assumptions, we would not have additional land value associated with investment (in the absence of agglomeration economies)). Since we do not have road user fees, value is created. Several of the methods proposed by the value capture study hold promise for financing transportation systematically, not just at the project level.

Fourth, in the short-term (next decade or so), gas taxes, indexed and adjusted appropriately should be used to fund transportation, as they are administratively much more efficient than road user charges. They have several advantages: foremost they are cheaper to collect than most of the proposed VMT charges. An annual odometer reading is certainly a similar alternative, but that does not have the environmental benefits of discouraging motor fuel consumption and encouraging better mileage. Ultimately as the fleet becomes electrified, the gas tax becomes a better and better incentive to move in that direction. If today 100% of the drivers use gas and pay for 100% of roads (which I recognize is not strictly the case at the state level, but is simply illustrative), and next year only 50% of drivers used gasoline, the remaining 50% would pay for all of the roads by doubling the gas tax. That provides a somewhat stronger incentive to switch to electricity. If the following year another 25% switch to electricity, than 75% use electric and 25% use fuel and pay the motor fuel tax, which is now 4 times as high. Eventually this becomes unsustainable as the last drive of a gasoline-powered car could not possibly afford 100% of the road system's costs, but in the meantime the incentive works in the right direction for the environment, and since government is always a lagging indicator, retaining the gas tax for as long as tenable should be considered the near term solution, with continuing research into road pricing, additional demonstration, and deployment of select strategies like High Occupancy Toll lanes. See Beyond the gas tax for a further discussion.

At any rate, as I have learned today, in Minnesota transit funding depends on the Motor Vehicle Sales Tax, so I will do my part to help fund transit and buy a car.

June 4, 2009

The Scrappage Scheme

From the Guardian, Budget 2009: car industry welcomes scrappage scheme

So in the UK (and apparently elsewhere in Europe similar policies are being put in place) ... from the article

"Motorists will receive £2,000 if they sell their old car and buy a new model, after the chancellor bowed to pressure from the automotive sector and announced a car scrappage scheme this afternoon.

Car and van owners whose vehicle was bought more than 10 years ago will be given £2,000 towards a brand new vehicle. The scheme will expire in March next year and follows similar moves by major European countries, including France and Germany.

But the car industry will have to contribute £1,000 to the grant and it will not be restricted to greener vehicles. The "cash for clunkers" programme will also be markedly smaller than Germany's, which is investing €5bn (£4.49bn) and has boosted sales by 40%. By contrast, the UK version will cost £600m (£300m from the government) and will end earlier than expected if the money runs out before March."

This is being paid for with an increase in fuel duty to 71%.

So UK is increasing marginal cost of traveling (higher gas tax), and lowering the upfront cost of newer (and presumably more fuel efficient and environmentally sound and safer) vehicles while stimulating the domestic (and international) auto sector.

It seems more productive to stimulate the auto sector in this way than nationalize it as the US has.

The highway trust fund is broke(n)

From Christian Science Monitor As road fund dries up, drivers must pay up ... the highway trust fund is about to be broke again, CSM endorses a gas tax increase.

February 25, 2009

The Gas Tax turns 90

From Wired: Feb. 25, 1919: Oregon Taxes Gas by the Gallon

October 15, 2008

as tax no longer hot issue

From the Strib: Gas tax no longer hot issue

"None of the websites of south-metro Republicans challenging the most vulnerable Democratic officeholders -- those still in their first term in office -- trumpets the gas tax as an issue. And candidates on both sides agree that it has faded."

July 21, 2008

US Highway Trust Fund to be out of money

From the LA Times U.S. highway trust fund veers toward crisis

"As motorists cut back on their driving and buy more fuel-efficient cars, the government is taking in less money from the federal gasoline tax.

The result: The principal source of funding for highway projects will soon hit a big financial pothole. The federal highway trust fund could be in the red by $3.2 billion or more next year."

This was not unpredictable, and the response is likely to be an increase in the gas tax at the next surface transportation authorization, which will further drive motorists from gasoline.

June 17, 2008


UPDATED August 27, 2009.

I am leaving today for Paris, where I will be presenting a paper at The 3rd International Conference on Funding Transport Infrastructure. We hope to have the 4th conference in Minnesota next summer.

The paper is:

Levinson, David and Andrew Odlyzko (2008) Too Expensive to Meter: The influence of transaction costs in transportation and communication. Philosophical Transactions of the Royal Society A: Mathematical Physical and Engineering Sciences 366(1872) pp 2033-2046 [doi]

Abstract. Technology appears to be making fine-scale charging (as in tolls on roads that depend on time of day or even on current and anticipated levels of congestion) increasingly feasible. And such charging appears to be increasingly desirable, as traffic on roads continues to grow, and costs and public opposition limit new construction. Similar incentives towards fine-scale charging also appear to be operating in communications and other areas, such as electricity usage. Standard economic theory supports such measures, and technology is being developed and deployed to implement them. But their spread is not very rapid, and prospects for the future are uncertain. This paper presents a collection of sketches, some from ancient history, some from current developments, that illustrate the costs that charging imposes. Some of those costs are explicit (in terms of the monetary costs to users, and the costs of implementing the charging mechanisms). Others are implicit, such as the time or the mental processing costs of users. These argue that the case for fine-scale charging is not unambiguous, and that in many cases may be inappropriate.

June 15, 2008

Memo to the Next President of the United States on Transportation Policy

I have drafted a Memo to the Next President of the United States on Transportation Policy.

The memo outlines ten visions, which are summarized here, for fuller discussion, see the full memo:

  1. Within eight years more cars sold in the United States will be powered primarily by electricity and bio-fuels than by fossil fuels. All buses and passenger trains will use electricity or bio-fuels.
  2. Within eight years Americans will be able to ride autonomous smart cars that drive themselves in mixed traffic.
  3. Within a year, an independent federally-funded Bridge Inspection Service will begin to inspect and publicly report on the quality of all bridges on the National Highway System.
  4. After thorough evaluation, within eight years, bridges and pavements on the US Interstate Highway System will be upgraded to handle trucks carrying up to 100,000 pounds, increasing the efficiency of the trucking industry and by reducing the number of vehicle trips, increasing safety for other road users. These improvements will be paid for by the trucking industry, which directly benefits from the improved system. In heavily traveled corridors, a system of truck-only toll lanes will be constructed.
  5. Within eight years American travelers can choose to travel congestion-free by car or bus through America's largest metropolitan areas.
  6. Within four years American travelers will enter airports and transit, and train stations and cross borders, passing both security and immigration controls without delay while ensuring security.
  7. Within eight years a new source of transportation revenue based on time and place of use will be deployed, replacing the federal and state gas tax. This funding will support highway and transit networks.
  8. Returning to the vision of Democratic President Andrew Jackson, items in federal transportation legislation that do not serve a national purpose will be vetoed.
  9. Extending the bipartisan efforts of transportation deregulation in the late 1970s and early 1980s, within four years, highway and transit services and infrastructure will begin to be competitively provided by independent (public, private, or non-profit) organizations under appropriate local or federal oversight. Infrastructure will be provided under a public utility model, ensuring quality of service in exchange for earning a rate of return.
  10. Within one year, the United States federal government will establish separate capital and operating budgets. This will be coupled with a federal program to guarantee loans and bonds for highway and transit infrastructure projects.

  11. Full memo after the jump

    Continue reading "Memo to the Next President of the United States on Transportation Policy" »

May 27, 2008

Sarkozy suggests cap on fuel tax

From the BBC: Sarkozy suggests cap on fuel tax

In Europe, gas taxes, in addition to being non-hypothecated, are also percentages of the gas price, as is typical with the value added tax. As the price of gas has risen, so has the revenue generated by the fuel tax. French President Sarkozy has suggested capping this tax (though no "holiday" to be sure). This is compounded by one of France's many strikes, this time by fishermen who are blockading ports to protest the high price of gas (thereby making it higher).

May 8, 2008

Voters seem to reject gas tax holiday pander

As even Paul Krugman notes: Talleyrand and the gas tax holiday

"I’m on record as saying that Hillary Clinton’s advocacy of a gas-tax holiday, while it wasn’t good policy, didn’t rise to the level of a crime.

Judging from last night’s results, however, it was worse than a crime: it was a mistake."

If it wasn't a crime, perhaps Clinton should suggest a "social security tax holiday", to give taxpayers a break.

April 22, 2008

Clinton Joins McCain on Gas-Tax Holiday; Obama Opposes

From WSJ: Clinton Joins McCain on Gas-Tax Holiday; Obama Opposes

One more reason Clinton should not be President. Think about it this way, imagine there were a road utility, which was a separate non-profit (but also non-loss) organization that managed roads, and received revenue from users, revenue which could only be spent on roads. We wouldn't let politicians take away its revenue because some other price went up.

Perhaps this is the model we should consider to help depoliticize road management.

April 15, 2008

McCain Proposes Break in Gas Taxes

McCain Proposes Break in Gas Taxes

"To help people weather the downturn immediately, McCain urged Congress to institute a "gas-tax holiday" by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day. He also renewed his call for the United States to stop adding to the Strategic Petroleum Reserve and thus lessen to some extent the worldwide demand for oil."

An amazing pander from an amazing politician. Perhaps we should suspend payments to private oil companies for gas as well. Since the user fee for roads doesn't need to be paid, neither does the user fee for energy.

We knew he cared about the environment, but it seems, apparently McCain is for global warming.

At least it is a non-starter.

April 16, 2007

History of MN Gas Tax

A nice article in today's Strib on the History of the Minnesota as Tax: Over its 82 years, state's gas tax has never cost so little

February 21, 2007

Oberstar speaks

Representative James Oberstar from Minnesota, now Chair of the House Transportation Committee spoke to a State Legislative committee yesterday: No gas tax hike, less federal aid, Oberstar warns

Minnesota has not raised the gas tax in almost 20 years, while the cost of roads has of course gone up. While the legislature has passed (and may again pass) a hike in the gas tax, the Governor and putative Vice Presidential candidate Tim Pawlenty has vetoed, and promises to again.

In reality, motorists would probably not notice a 5 or 10 cent rise in the gas tax, that is within the natural volatility of gas prices on daily basis anyway. Second, the funds go to transportation, which is generally a popular use of the money. Third, the US financing context is rigged so states need to produce matching funds to obtain federal resources. It would seem locally advantageous for those in charge to pass (and sign) such a tax.

There is of course the question of how the money would be spent, and whether the spending priorities that would be enacted align with needs. This is particularly the case because we undercharge for the use of roads (like most of the world, there is no pricing of congestion impacts in Minnesota), and so overconsume, and thus have more congestion than we otherwise should. But gas taxes have the merit of having a low collection cost compared to tolling, so less is wasted.

Alas, the world is imperfect, and the question of which way is the best to proceed depends upon assumptions, and trading off the ideal with the achievable, which is the job of politicians.

September 26, 2006

A Tax on Gore: Truth and Carbon Taxes,

A Tax on Gore: Truth and Carbon Taxes, some thoughts

Al Gore, in a recent speech at New York University about the appropriate response to global climate change said
“For the last fourteen years, I have advocated the elimination of all payroll taxes - including those for social security and unemployment compensation - and the replacement of that revenue in the form of pollution taxes - principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.

Global warming pollution, indeed all pollution, is now described by economists as an ‘externality.’ This absurd label means, in essence: we don’t to keep track of this stuff so let’s pretend it doesn’t exist.?

It sounds like a neat trick, killing two birds with one stone. Certainly, I am open to taxing externalities based on the difference between their social and private costs. In contrast to Mr. Gore’s aspersion on economists, the word “externality? doesn’t mean we should pretend it doesn’t exist, it means the relevant actors (the polluters) pretend it doesn’t exist, which is a problem because it does.

Economists suggest several alternatives. Nobel Prize winner Ronald Coase suggests establishing legally enforceable property rights. The reason we have air pollution is because nobody owns the air. The reason we have less land pollution (e.g. dumping) hither and yon is because people do own the land.

The problem of course is (a) establishing ownership of the air and (b) tracking air pollution back to its source so that polluters can be legally charged.

The second solution is regulatory. With regards to traditional “criteria? pollutants in the US (ozone, carbon monoxide, oxides of nitrogen, sulfur dioxide, lead, and particulates), tailpipe pollution is regulated by the Environmental Protection Agency, and cities have to ensure their transportation plans don’t pollute beyond a certain threshold. Currently, CO2 is not a criteria pollutant because it does not have health effects, at least not in the same way. This is a quantity-based strategy. Mr. Gore advocates this when he suggests “freezing? carbon emissions.

A third solution, as Mr. Gore also suggests, is taxing pollution. In its pure form, we would allow anyone to pollute as much as they want, so long as they pay the carbon tax, which if properly set, would constrain the amount of pollution produced by providing the correct incentives. That tax (say X$/ton) would equal the social effect of the pollution. Establishing that social cost is not simple, nor is it uncontroversial. About 10 years ago I read a book about this by William Nordhaus, (the updated version is Warming the World: Economic Models of Global Warming by William D. Nordhaus and Joseph Boyer). The tax per ton would rise over time (as presumably would the impact of climate change, and our ability to pay for it). This is a price-based solution. The recent emergence of emissions trading combines quantity and price-based solutions.

Figuring out the proper level of the tax is no simple matter either. We can think about it in terms of damages: if the pollution went unprevented, what would it cost to fix. Or we can think about it in terms of prevention: how much would it cost to avoid the damage. If the cost of damage exceeds the cost of prevention, we should prevent, if the cost of damage is less than the cost of prevention, we should accept the damages. In practice we may prevent some damage and accept some damage.

Another point is that an externality requires two actors: the polluter and the pollutee. If I pollute, but no one is damaged, no harm is done. Think about noise: As the old koan goes, If a tree falls in the woods and no one is there to hear it, does it make a noise? No, the noise externality is only present if someone hears it and is harmed. By moving into the way of the harm, you are imposing costs on the polluter. Another example is the conflict that occurs with suburbanization into agricultural areas. As much as our politicians romanticize the family farm, farms smell. This isn’t a problem so long as only cows and farmers live there, but when suburbanites move in, this becomes a problem. Should the farmer pay, after all it is his farm producing the externality? Or should the suburbanites bear the cost, since without their presence, no externality would exist?

With climate change, because of its global nature, we might think consider the polluter clearly at fault. But what about people who move into low-lying, flood-prone areas? If no one lived below sea level in New Orleans, the economic and social damage of Hurricane Katrina would have been much less. Who should pay, the polluters (worldwide), who changed the climate and according to Mr. Gore, made the hurricane more likely, or those who moved into a vulnerable position? If you say some combination of both (which is of course the right answer), what is the combination?

So even if we have achieved consensus that we are spewing CO2 into the atmosphere, and are in agreement about the direction of that effect (it will make things warmer rather than colder in general), we are still in disagreement about the magnitudes of the climate effects resulting from that CO2, and in even greater disagreement about the economic cost that the climate effects imposes. I have worked with enough large-scale models to conclude that a plethora of assumptions founded on inadequate evidence must produce huge uncertainty.

Into this environment, Mr. Gore proposes a multi-part acronym-filled scheme that would make a Washington policy wonk swoon. Which leads us back to the carbon tax, which, if set correctly, is perhaps the most effective strategy. Mr. Gore proposes eliminating the Social Security payroll tax and replacing it with a carbon tax, ensuring the policy is “revenue neutral?. This reminds me a lot of 1980 presidential candidate John Anderson’s proposal for a 50 cent tax on a gallon of gasoline in exchange for dropping the Social Security tax. So the idea is at least 26 years old.

The payroll tax has elements of unfairness. However Social Security has nothing to do with climate change (except, I guess, that old people pollute). This is an illogical linkage, and will produce a perverse result. If the carbon tax is successful, we lose our funding base for Social Security, which as popular polls suggest, already fails to engender much faith in its fiscal health.

Two more Nobel Prize winning economists have suggested some rules about managing economic policy:

1) Jan Tinbergen's rule: Achieving a multiple number of independent policy targets requires an equal number of policy instruments.
2) Robert Mundell's rule: Each policy instrument should be assigned to a policy target on which it has greatest relative effect.


In other words, these economists posit one policy target per policy instrument (or one stone per bird). Trying to solve two problems requires two policy instruments, and so on.

If we levy a carbon tax, the revenue should be used to fix the damage global climate change causes or to prevent that damage in the first place. The amount of money that should be charged in a carbon tax is independent of the amount of money required for the payroll tax. By making the plan “revenue neutral? we are either raising too much money (and wasting money by reducing more carbon than would economically efficient) or not enough money (and wasting the opportunity to provide incentives to invest in more carbon-reducing strategies).

That said, Social Security should be financed appropriately as well, but that bird deserves another stone. I believe that there should be one policy analyzed per policy essay.

May 13, 2006

What would someone less simplistic say

I wrote to my friends that Andrew Sullivan is right about conservative govt. being dead, but being quite simplistic about gas taxes (and sounds just like Thomas Friedman).

To which my friend Phil Goetz asked "What would someone less simplistic say?"

Continue reading "What would someone less simplistic say" »

May 11, 2006

"Data" is not the plural of anecdote

In the blog L.A. traffic sucks: Let's fix it! the author argues that driving is an "addiction". I believe people are behaving individually rationally (with perhaps irrational preferences) to achieve personal satisfaction, which may result in societally unoptimal outcomes.

Continue reading ""Data" is not the plural of anecdote" »

Highways in Africa

In the most recent episode of The West Wing(the penultimate episode "Institutional Memory"), White House Chief of Staff C.J. Cregg is being recruited to help run a foundation loosely based on the Bill and Melinda Gates Foundation, and her idea of what the best use of $10 billion would be to criss-cross Africa with highways, which would enable the delivery of medicine, expand trade, and do all sorts of good things.

Continue reading "Highways in Africa" »

May 10, 2006

Gas taxes are again in fashion

From The Becker-Posner Blog: Gasoline Prices--Posner's Comment the higher gas tax is again in fashion.

Continue reading "Gas taxes are again in fashion" »

From the "The price of gas is high, let's make it higher" deparment

An example of a recent line of reasoning ... Bring On The $6 Gallon Of Gas / It would revolutionize America. It would make us all better humans. But could you handle it?

Another example from Andrew Sullivan

Or this from Thomas Friedman

Continue reading "From the "The price of gas is high, let's make it higher" deparment" »

May 4, 2006

Value of time vs. Cost of gas

In Dynamist Blog: Angelenos for Higher Gas Prices Virginia Postrel notes the upside of higher gas prices ... less traffic. We can do a back-of-the-envelope calculation. So let's say her car gets 30 miles per gallon, and gas is $3 per gallon, she is paying $0.10/mile. If she were traveling at 50 miles per hour when gas was $2 per gallon ($0.067/mile) and 60 miles per hour now (at $3/gallon), she is traveling 20% faster (a one mile trip used to take 1 minute and 12 seconds but now only takes 1 minute). (I doubt average speeds have increased that much, but if she is noticing it, it is probably at least 10%).

Continue reading "Value of time vs. Cost of gas" »

April 30, 2006

Covering the Economy: Gasoline Prices

Brad DeLong on the politics of gas prices ... Brad DeLong's Semi-Daily Journal: Covering the Economy: Gasoline Prices

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