Fuel tax rebates attributable to the miles driven on an interstate highway could help to quell long-standing concerns of double taxation by partly offsetting the cost of new tolls, according to a new report from the Reason Foundation.
The report was authored by Robert Poole, director of transportation policy at the Libertarian think tank. Interstates, like much of America’s infrastructure, are aging and “most interstates will need reconstruction and modernization over the next two decades,” the report said.
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A growing number of states is considering toll-financed reconstruction of Interstates, the report said. But over 90% of all Interstates are currently not tolled, the report noted, and elected officials are wary of the general resistance among motorist and trucking industry groups to adding tolls to existing highways.
“One of the largest political obstacles to gaining legislative and highway-user support for such tolling is the objection to ‘double taxation’ – paying both tolls and fuel taxes on the same highway,” the report said.
“Providing rebates of gasoline and diesel taxes for all miles driven on the rebuilt and modernized interstate corridors would eliminate that concern, while using only a small fraction of the state fuel tax revenue for rebates.”
State departments of transportation may be worried about the loss in revenue by providing such rebates, but according to the reports’ feasibility tests, the rebates would sap less than 7% of new toll revenue.
“The primary conclusion of the analysis, assuming the assumptions made are reasonable, is that the fuel tax rebates paid out would be less than 7% of the new toll revenue, would only begin to occur as of 2030 and would decrease over time,” the report concluded.
“By removing a large obstacle to toll-financed interstate reconstruction, the fuel tax rebate provision would enable a state to accomplish the very costly task of rebuilding its interstates using only a modest fraction of its state fuel tax revenue for rebates,” the report said.
“The avoided costs of interstate reconstruction and widening would be the $6.6 billion (net present value) in construction cost plus the ongoing operating and maintenance costs, all of which would be covered by the toll revenues,” the report concluded.
This would also leave the remaining fuel tax revenue, following the proposed rebates, to be used for maintaining and improving all the other roads for which the state DOT has responsibility, the report said.
“By using that small portion of its state fuel tax revenues to remove the ‘double taxation’ objection to tolling, the state DOT can shift the major investments needed to rebuild and modernize its long-distance rural interstates from the fuel tax to tolls, while also covering the tolled interstates’ operating and maintenance costs out of the toll revenue,” the report said. “This will free up the state’s other fuel tax funds for all other state highways.”
In 2011, Poole carried out a 50-state feasibility study of toll-financed reconstruction and widening of the entire interstate highway system, concluding that these would be financially feasible for all but five states as some states have low traffic, low population and/or high construction costs, listing Vermont as an example.
But in 2021, only four states – Connecticut, Indiana, Michigan and Wisconsin – have taken it upon themselves to conduct large-scale studies of toll-financed interstate reconstruction. Projects to rebuild individual corridors or major bridges have resulted in Alabama’s I-10 bridge, Colorado’s I-70, Louisiana’s two I-10 bridges, Missouri’s I-70, North Carolina’s I-95, Oregon’s I-5 and I-205, South Carolina’s I-95, Virginia’s I-81 and I-95 and Wyoming’s I-80.
But fuel tax rebates of this kind are currently only available for heavy trucks using the Massachusetts Turnpike and the New York Thruway. Rhode Island has implemented tolling of only heavy trucks to help fund replacement of deficient bridges on Interstates and other highways.