New Report: Tax on Oil and Gas Key to Improved U.S. Transportation

The report suggests a five percent ad valorem tax on oil up-stream and gas downstream to help cover the cost of transportation in the United States. Photo by Mike Baird.

The Carnegie Endowment’s Leadership Initiative on Transportation Solvency released a new report on political measures that could fund and fix the transportation program in the United States. The report is written under the leadership of former U.S. Senator Bill Bradley, former Pennsylvania governor and secretary of Homeland Security, Tom Ridge, and former U.S. comptroller general and current president of the Comeback America Initiative, David Walker.

Titled, “Road to Recovery: Transforming America’s Transportation,” the report is an effort to establish a national vision for the future of transportation policy and provide feasible strategies to help further the cause of sustainable transportation, which, as the authors suggest, provides tangible economic benefits in the form of access to markets for both households and firms. As the report says, “A nation’s transportation system is a major actor in its economy, deserving investment and requiring federal funding and oversight.”

With Congress’ recent budget cuts of up to 20 percent in transportation, the three former legislators—a Democrat, a Republican and an Independent—argue that “less is the wrong way to go.

“The United States is one of only a handful of countries in the world where revenues raised to support the federal transportation system do not cover costs,” the report explains. “Revenues represent just 62 percent of federal surface transportation expenditures, while all other members of the Organization for Economic Cooperation and Development, the group of developed economies, more than cover 100 percent of their transportation expenditures through user taxes—and sometimes several times over.”

Failing to meet our costs in transportation also has an impact on transportation as an investment, the authors explain. “The rate of economic return from investment in highway infrastructure in the United States has been approaching the long-term interest rate (cost of capital) since the 1990s. Once the rate of economic return meets the long-term interest rate, it becomes equally beneficial to keep invested capital in the private sector, a clear signal that those investments could be without merit. At that point, the system no longer delivers the benefits necessary to justify public funds.”

Despite the discouraging realities of transportation investments and the importance of the network’s existence for the betterment of our economy, Americans still consider federal investments in transportation “unwise.” According to a 2011 national public opinion poll, 79 percent of the public agrees modernizing transportation infrastructure is a key factor to remaining a top economic super-power, yet 64 percent of the public feel federal spending on transportation infrastructure is inefficient and unwise.

In order to resolve these issues, the authors suggest an improved strategy for pricing transportation and optimizing transport investments. From taxing the carbon content of fuels to inefficient travel behavior, the authors argue that there are many options in the realm of pricing, which also include pricing  low-mileage vehicles and emissions in the development of refined petroleum products.

But the best immediate strategy, the authors say, is stable pricing of oil and petroleum products. Why, you ask? Because “this strategy reflects the current transportation system and its dependence on oil by capturing and distributing the external, social and hidden costs generated by the production, refining, distribution, and consumption of such fuels.” Specifically, the three former legislators are suggesting a five percent ad valorem tax on oil up-stream (at production or importation) as the world prices rise, and a tax on gasoline/diesel downstream (retail sales) as the world oil prices decline. As an additional strategy to improve transportation investments, the authors suggest removing poorly designed and obsolete programs.

In conclusion, “Kicking the can of revenue and program reform down the road does not help us live within our means—it simply transfers these burgeoning costs to future generation of Americans.”

To download the report, visit the Leadership Initiative on Transportation Solvency.

What do you think? Will an ad valorem tax on oil up-stream and gas downstream help solve our transportation funding woes?

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  • Doug Kelbaugh

    Bravo!
    We need both higher and more consistent fossil fuel pricing if we are to stretch our ever more scarce supply and to cut consumption of this incredibly power-packed, safe and transportable energy source.
    It may be economically painful in the short run, but oh so much pleasant and resilient in the long run.