How to Pay for Highways


How to Pay for Highways

By Eileen Norcross |
Jan 23, 2013

Virginia Gov. Bob McDonnell recently touched off a national debate over how to fund America's roads. His transportation plan includes a proposal to eliminate Virginia's 17.5 cents per gallon gas tax and replace it with an increase in the state's sales tax.

The governor is right to note that the gas tax suffers from multiple problems as a revenue source. As cars become more fuel-efficient and motorists choose to drive alternative fuel vehicles, the gas tax doesn't go the same distance it once did. Also, Virginia hasn't indexed the gas tax to inflation since 1986; otherwise the tax would be 36 cents per gallon by now.

However, switching from a user-based tax to a broader source of revenue for roads violates the principles of user-pays and transparency in taxation. The merit of the gas tax is that drivers pay for road improvements—at least in theory. In reality, the gas tax is a second-best option as a user-based source. Drivers don't pay directly for their individual road use, as is the case with a toll-based system.

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