Your article on mileage tax as opposed to tax on gasoline was interesting and informative. Is it possible that there may be a better way to tackle congestion, air pollution and providing roads?
I am personally interested in congestion for I believe that it provides a government to raise tax while at the same time increase welfare. This tax would be the second least worst tax after tax on the unimproved value of land.
It has been observed the world over as people become more prosperous the first thing they purchase is a car. In fact as soon as a new road is constructed in Beijing it takes mere weeks for it to also becomes congested. Every extra motorist on the road has a negative externality on all other road users; they force other road users to go slower. London city has implemented a policy where they tax every vehicle which comes into the city centre in peak hour; this should be extended to every road in America whereby at every peak hour (when congestion occurs) a tax would be levied on the motorists. Apart from administrative costs, this tax will actually increase welfare by improving the efficiency with which the roads are utilized while increasing government revenues. This revenue does not need to spent on new roads any more than the tax on rich people should be spent totally on the rich.
Secondly air pollution of motorists can be tackled by a tax on gasoline which will increase welfare by taxing negative externality of the motorists. The tax on gasoline should not be used for making more roads because there is a better alternative which is not as inefficient. Tax on gasoline is a very poor way to target congestion, not all roads are congested at all times but a tax on gasoline penalizes all road users at all times on the road. E.g. there is peak hour traffic to a major city but a 100 km away on a dusty country road there is only the odd wildlife, why should the road user on the dusty empty country road be penalized as much as those in peak hour traffic?
Yes, the dreaded four letter word toll. On every major piece of roadwork there should be a toll which helps contribute to its upkeep and pay its construction costs. This is better than taxing gasoline because its removes the politburo from deciding on pork barreling and deciding where the new roads have to be built. Instead it introduces market forces of supply and demand. Will there be enough demand to justify the new road private contractors will ask. (private companies should be running the construction).
Does this mean government has no role in transportation and roads? In other words do roads have no positive externalities? Imagine an accountant who works from home (with the internet) and has no vehicles and thus doesn’t use the roads. Does he derive any benefits from the road? Of course he does, the orange juice and cereal he eats each morning is cheaper because of the road and he himself does not have the means or the inclination to build a road to his house if there isn’t any there. Roads are a public good and there will be underinvestment without government action. Therefore the government should provide subsidies to all roadwork’s without trying to pick which roads should receive full government funding.
