Over the last 20 years, tolling and sales taxes have become popular highway funding sources for governments in search of the money to pay for needed transportation projects. The popular perception among many in transportation circles is that tolling is the most regressive funding source for highways, whereas sales taxes are often presented as a fairer way to pay for highways. This is incorrect. When it comes to highways, users should pay for them. Sales taxes take larger percentages of income from low-income taxpayers than they do from high-income groups and are not the best way to pay for transportation projects, including highways.
Squarely in the group claiming ‘tolling is regressive’ is House Transportation and Infrastructure Committee Chair Peter DeFazio (D-OR), who has labeled the peak-period, congestion-priced section of I-66 inside the Beltway in Northern Virginia as “a chauffeured limousine lane.” While claiming he is trying to create the most progressive federal surface transportation reauthorization bill ever, Rep. DeFazio’s proposed bill would make it more challenging for states to use tolling to rebuild and reconstruct their Interstate highways. The House transportation bill from Rep. DeFazio would eliminate the Interstate System Reconstruction and Rehabilitation Pilot Program, which allows a small number of states to use toll financing to reconstruct aging Interstates. The bill would also require obtaining a federally-approved tolling agreement before any jurisdiction is allowed to use tolling to help rebuild its Interstates.
Some states, including Florida, Texas, and Virginia have used tolling to build new highways or add new express toll lanes to existing highways. But generally, transportation sales taxes have proven much more popular for states seeking additional funding for transportation projects. Since 1980, at least 38 states have enacted statewide or countywide sales taxes for transportation. Some of these sales taxes are authorized for a fixed period of time, such as 10 years, and then must be approved by voters again. More troubling are “evergreen” sales tax measures that never expire.
Los Angeles County has funded many of its highway and mass transit improvements with sales taxes approved by the region’s voters. The county currently has one of the highest sales taxes in the country. Depending on the city within Los Angeles County, sales tax rates range from 9.5 to 10.5 percent. A full two percent of this total is for transportation, made up of four 0.5-cent sales taxes.
A report from UCLA’s Institute of Transportation Studies has the following description of the county’s transportation-related sales taxes:
“For four decades Los Angeles County has been relying increasingly on revenue produced locally through sales taxes to finance its progress toward a regional rail system, to operate its extensive network of bus lines, to maintain and improve its highway network, and to expand its investments in active transportation programs, including bicycle and pedestrian facilities. Nearly half (48.4%) of the current LA Metro budget is raised by four permanent LOSTs: Proposition A, enacted in 1980; Proposition C, approved in 1990; Measure R, which followed in 2008, and Measure M, approved in 2016. Each of these measures, approved by the voters of Los Angeles County, authorized one-half percent general sales tax increases. The resulting total two percent sales tax for transportation is collected in Los Angeles County by the state along with other sales taxes and credited to the county usually about two months after being collected (California Department of Tax and Fee Administration, 2020).”
Rep. DeFazio may be staunchly against tolling, but a landmark UCLA/USC study using data from 2003, found that tolling is less regressive than sales taxes. According to that study, “(The poor households) don’t pay for the road space that benefits others. But these same poor households pay up to 4 percent of their income each year in sales taxes. Had the lanes been financed by a sales tax, Orange County’s poorest households would have paid over $3 million of the $34 million needed to fund the facility in 2003.”
Even more interesting is who the study found would have benefited from using a sales tax to pay for the lanes. With tolls or the gas taxes that drivers are familiar with, the burden to pay for the lanes falls on drivers who use and benefit from the lanes. With a sales tax, the study found that almost every user of the SR 91 express toll lanes would have paid less than they were paying because the costs would be spread over the entire county population. Frequent users of the toll lanes would have saved $700 a year. In contrast, residents who never used the toll lanes would have paid $5 to $80 more per year in taxes. Using a general sales tax to fund the lanes instead of a toll would have resulted in those who drive the least helping subsidize those who drive the most. Lisa Schweitzer and Brian Taylor wrote:
“With tolls, the burden of the Express Lanes falls on the relatively small group of people who choose to pay, and who as a consequence enjoy the time savings the lanes provide. With sales tax finance, virtually all users of the 91 Express Lanes would pay considerably less than they do now, because so many nonusers would pay. In 2003, this burden shift would have benefited frequent users of the 91 Express Lanes by around $700 a year. The additional costs to each sales-tax-paying “loser,” by contrast, would be relatively small, on the order of $5 to $80 per year, depending on the household type. But the relative size of this burden transfer does not obviate the question of whether people who don’t use the lane should subsidize people who do. If the answer is “yes,” the underlying logic implies that any public expenditure, no matter how small its benefits, can be justified, so long as the cost is spread over a large enough base of taxpayers. It also implies that those who drive least should, with every purchase they make, help pay for roads for those who drive most…
Our examination of the 91 Express Lanes in Orange County, California finds that transportation sales taxes are doubly unfair. They disproportionately burden the poor and those who drive little or not at all. We find that the heaviest users of the 91 Express Lanes— and the largest beneficiaries of them—are primarily from middle- and upper-middle income households both inside and outside of Orange County. From a regional planning perspective, funding freeway capacity with sales taxes is a pro-auto/pro-driving policy that taxes all residents, rich and poor alike, to provide benefits to a much smaller group of drivers and their passengers.”
By not allowing states to toll the reconstruction and rebuilding of their own highways, it can be argued federal lawmakers are encouraging local policymakers to enact sales tax increases, which disproportionally impact low-income families and can exacerbate inequality.
Transportation sales taxes burden the poor and those who drive little or not at all, which is often the same group of people.
In addition to the user pays principle, variable-priced tolling has other benefits, particularly in major metropolitan areas. By reducing congestion and increasing travel speeds, pricing reduces traffic delays, fuel consumption, and vehicle emissions.
Sales taxes do none of these things. Roads and highways should be paid for by their users. If members of Congress insist on subsidizing drivers, rather than subsidizing all drivers to help a small number of low-income commuters who travel long distances and would pay more in tolls or gas taxes, it would be better to specifically subsidize those low-income commuters and ensure that everybody else pays full price for the roads that they use.