ANTI-TOLL SENTIMENT Why Not Rebate the Highway User Taxes?

February 15, 1999

Why Not Rebate the
Highway User Taxes?

Originally published in issue 36 of Tollroads Newsletter, which came out in Feb 1999.


Subjects:anti-toll demagoguery tax rebates user charges politics of tolls


Locations:Arkansas AR

Sources:Ted Scott

Ted Scott head of policy at the American Trucking Associations in Alexandria VA tells me his organization is gearing up for a major campaign against tolling the interstates: “All they (governments) are trying to do is to impose another layer of taxation on top of the existing one. The road has already been paid for. They (truckers) shouldn’t have to pay all over again.” One answer to that is to say that in the case of Arkansas where the highway commission proposed tolls, they propose it is a matter of history of what happened to past money, but that here and now the question is how best to finance reconstruction of broken roads – higher taxes or tolls. But perhaps the truckers have something of a point. Why DO they pay highway user taxes (hwy taxes) when they aren’t driving on roads supported by those taxes? There’s double charging.

Hwy taxes consist of some $63b of fuel taxes ($39b states and $24b federal) and $33b of registration fees, heavy vehicle taxes and suchlike for a total of $96b (All numbers are yr-2000 projections from the USDOT’s 1997 Federal Highway Cost Allocation Survey FHCAS pIV-20.) Toll revenues by comparison are $8b. (pIV-20)

At most levels of government the rationale for these taxes is funding the maintenance and construction of free public roads. Such charges make no sense on toll roads since the tolls fund the tolls roads.

Well established practice provides rebates for farmers, mining companies, and others who buy fuel at prices that include the hwy taxes on the grounds that they are won’t be using the fuel for public highway use, and so deserve the hwy taxes back. Close to $2b in rebates and exemptions are granted by the Feds (97 FHCAS pIV-11) and probably a similar amount for off-highway use by the states. Such exemptions go back almost to the beginning of taxes on gasoline and diesel. If the taxes are to pay for the provision of the untolled roads, then it seems logical that the tax should only be due for travel on those untolled roads. Users of toll roads financed by tolls, and not beneficiaries of the highway user revenues should be just as eligible for rebates or exemption from hwy taxes as are farmers, miners and construction companies.

To restate the principle: Hwy taxes go toward free public roads and should only be levied on traffic traveling on those roads. It is just as wrong to levy the highway taxes on traffic on toll roads as it would be to levy it on the farmers, miners and so forth using their vehicles off road.

There’s an interesting wrinkle to this. When recreational boat owners are sold fuel at a gasoline station the federal fuel tax is payable, but rather than being credited to the Highway Trust Fund, it is transferred to a special fund for promoting boating safety and boating facilities. Commercial fisherman however are entitled to exemption from fuel tax, like farmers, miners and others.

Before the Interstate highway system was launched in 1956 there were lively arguments over whether it should be tolled and bond-financed or free and fuel tax financed. The final decision in favor of it being free and tax financed is attributed to the refusal of the head of the Senate Finance Committee, Harry Flood Byrd to support toll revenue bonds. A conservative Democrat, Byrd was not opposing tolls as such but was deadset against the increased debt that he saw accompanying the toll proposal favored by some in the Eisenhower administration. (see Tom Lewis “Divided Highways” Viking, 1997 p114) And part of the original scheme for a free interstate system was that the major tolled roads that formed its heart in the early days (NJ, PA, OH, IN, NH, MA, NY, IL, ME Turnpikes etc) were to be freed of tolls by having the gas taxes and other hwy taxes buy out the debts of the state turnpikes. The 1956 Fed Aid Hwy Act provided (sec 114) for a report on whether and how the states could be compensated for the toll roads they had built on the premise that these pikes should be melded into the free tax-financed system. That buy-out of the toll roads never happened because the construction of new interstate was always regarded as a higher priority in the use of hwy tax funds than removal of tolls. (USDOT “America’s Highways: 1776 to 1976" p294) But an argument can be made that it was never contemplated that hwy taxes should be collected indefinitely on traffic using toll roads.

Truckers are right

There clearly is truth then to the objection that tolls and taxes together represent double charging if not double taxation. (Tolls are prices, charges levied in return for use of a given facility, so the term double taxation is incorrect.) The argument against ‘double-charging’ is most often used against tolls, but it can equally cogently be used to urge the abandonment of hwy taxes on self-financed toll roads.

How much money is involved?

First we need to relate the existing hwy taxes to vehicle-km traveled and see how the hwy taxes compare to tolls.

For all vehicles aggregated it’s $96b/4331b veh-km=2.2c/km (3.5c/mi). For cars, pickups and other light vehicles (LV) the number is 1.8c/km, for single-unit trucks (SU) 7c/km and for combination vehicles (CV)10c/km. These are not insignificant amounts of money! They look to be a major addition to the toll in all cases, equivalent to the toll in a number, and in some cases larger than the toll.

Tolls for passenger cars on present American toll roads vary between about 2c/km and 12c/km, and an average is perhaps 5c/km, so Hwy taxes are equivalent on average to between a half and a third of the toll overall. Tolls for basic combination vehicles (5-axle tractor-trailers) range between 6c/km and 25c/km with there being a major cluster are around 9c/km. I checked this impression against a random look-up of toll rates from my files, the Ohio Turnpike. Taking a full 381km length trip between the PA and IN lines a car pays $8.20, 2.2c/km, a class 4 vehicle the typical single unit pays $20.10 5.3c/km and a class 8 tractor-trailer pays $38.90, almost dead on 10c/km. So interestingly does the NJ Turnpike (9.6c/km) The big rigs do most of the pavement breaking and they rightly pay heavy tolls or highway user taxes, but the indications are that the hwy taxes they pay are about the same as their average toll rate, which suggests they are seriously overcharged when they are hit with both tolls and taxes on a toll road.

Drop the tax, not the toll

Now those of us who see merit in tolling as a principle, believe it is the fairer method being (1) the most direct application of the user-pays principle, (2) enabling the closest financial coupling of customers and service-providers. We support it because it takes roads a step away from corrupt, capricious politics toward (3) making highway service a regular self-funding business operation. (4) Further it opens up the opportunity for variable pricing to manage expensive resources better. Therefore it makes sense to counter the “tolls are a second tax” with the proposal to get rid of the taxes on the toll roads.

If Ted Scott’s rigs are being charged hwy taxes about the equivalent to tolls on most existing toll roads then tolls-minus-hwy tax should be an attractive proposition to them. In some cases the toll mightn’t cost them anything in extra out of pocket expenses, and of course it should offer them the prospect of a highway service provider with far more concern to accommodate their needs than a rule bound, politically driven state DOT.


Those who stand to lose will oppose this of course. The losers will be the beneficiaries of the existing hwy taxes, the state DOTs, transit and environmentalists, all the people who cheered TEA21 – because it would reduce TEA21 monies by x%, and reduce state revenues by y%. We can’t put numbers on x and y because, hard though it may be to believe, there seem to be no ready estimates of aggregate vehicle-miles traveled on toll roads in America. From USDOT/BTS we’ve got miles traveled by different categories of vehicle, on different categories of roadway, in different states, etc but no breakdown by toll road versus free road. It seems such a basic statistic, but neither IBTTA nor the USDOT’s Bureau of Transp Statistics (BTS) does it. No one yet knows how much American traffic is on toll roads versus on tax-financed roads! TRnl’s research department however came up with the following.

The point tollsters generally don’t calculate travel on the pikes but the trip toll agencies compile veh-mi traveled (VMT) and report it in their annual reports. From our file cabinet we found OH 2.5b (1.7b cars, 0.8b trucks), IN 1.0b (0.6, 0.4b), NJ 4.7b, NYSTA 8.7b, OK 2.2b, FL 3.8b, PA 4.7b. There’s 28b veh-mi on 7 large state pikes. They might be a bit under half of total VMT? Leave aside the crossings which are so short they run up quite small VMT. That would put total VMT on toll roads at something like 70b or 110b-km, in 1997, say 120b-km in 2000, which compares with 4300b km on all the nation’s roads (97FHCAS pII-15) or just under 3%. On that backath’envelop figuring a rebate of the hwy taxes would be somewhere around $3b ($96b x 0.028) - not chump change when compared to toll revenues for that year of $8b.

How realistic?

Maybe it just isn’t realistic to expect all the hwy taxes to be rebated? We could concede the hwy taxes that are independent of distance traveled are inapt for rebating. That includes the registration, drivers license fees and excises but leaves all the fuel taxes, the heavy truck tire tax, weight distance taxes and heavy vehicle user taxes as wrongly levied on toll road travel. It would reduce the base for rebating from $96b to about $67b, which would reduce the hwy taxes/km to 1.6c/km from the 2.2c/km. That would mean if we are correct in there being about 120b-km traveled on toll roads we are shooting for $1.9b in hwy tax rebates.

It is the users of toll roads not the toll roads themselves that are entitled to these hwy tax rebates. But that won’t mean the toll roads won’t benefit. It will be the equivalent of a substantial reduction in effective toll rates as felt by patrons of toll roads and will benefit the tollsters either in higher traffic volumes or in the ability to raise toll rates without suffering much loss of traffic. Either way it will improve their competitive position relative to untolled roads. It will put them on a fairer footing, a more level playing field.

The paperwork

Ted Scott is right that you have to be careful to propose something that doesn’t require a huge amount of paperwork on the part of users. Once the federal and state legislators had enacted the right to a rebate on these taxes, the toll agencies could offer to collect the rebates on behalf of users. At least on behalf of users with accounts. It should be just a matter of programming the account management systems to compute distance traveled each month, then apply a vehicle class estimate of miles/gallon of fuel, and for trucks a tire wear factor and the weight for the distance weight tax. The computer would make it a piece of cake. The rebate claims would be submitted by the toll roads to the state and federal tax authorities and the money collected from them, and the patrons accounts credited. This would leave the occasional users of toll roads still paying hwy taxes on their toll road mileage, though they would be legally entitled to pursue the rebates if they wanted to take the trouble.

Politics and economics

The argument for hwy tax rebates is both economic and political: (1) Economic in that it would eliminate an inappropriate burden presently imposed on toll road patrons and put toll roads in a fairer position to compete with free roads. (2) Political in that it will go a long way to blunting the ‘double charging’ objection to tolls.

FOLLOWUP: Clearly the numbers and detail of this proposal need to be subjected to much sharper analysis than we’ve been able to do here. Decent estimates of VMT on the point tolled pikes and a breakdown of VMT by classes of vehicle are needed because the rebates will be very different between classes. Maybe someone out there has already been thinking about this and done work on it. The Ohio Turnpike I know has been pushing for rebate of state highway user charges on its pike. I’d like to follow up any comments readers may have or references to any work done on this subject. fax 301 631 1248 tel 301 631 1148



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