If you watched last week’s Shaftesbury Society meeting, you heard Cato Institute transportation expert Randal O’Toole’s recommendation that North Carolina rely more on user fees to meet its transportation needs.
Kyle Pomerleau of the American Enterprise Institute makes a similar case for infrastructure projects in general.
Lawmakers are currently negotiating the details of an infrastructure package. Lawmakers want to avoid adding significantly to the debt but are split on the best method to raise revenue for the new spending. The Biden administration and the Democrats want to raise taxes on corporations. The Republicans, however, are unwilling to raise corporate income taxes and have suggested raising “user fees” to fund the new spending. The Republican suggestion, in principle, has merit.
User fees, or more generally, “user charges” are taxes or fees that individuals or businesses pay related to a benefit they receive from the government. This includes fees paid to the government to defer the cost of a service or a tax connected to the use of public goods.
Federal, state, and local governments currently fund much of US infrastructure with user charges. The federal government provides funding to state and local governments for highways through the Highway Trust Fund (HTF). The HTF receives dedicated revenue primarily from the excise tax on gasoline and diesel fuel. Airport infrastructure is funded in a similar way through the Airport and Airway Trust Fund, which receives revenue through several taxes and fees on airline tickets. States levy their own excise taxes on fuel to help fund infrastructure.
User charges are a fair way to distribute the cost of infrastructure. User charges conform to what is called the “benefit principle.” This principle states that the taxes and fees one pays for government benefits should be connected to the benefits one receives. In the case of highways, the consumption of gasoline has traditionally corresponded to use of roads, so a tax on each gallon of gasoline was seen as a fair way to have those that use roads contribute to their construction and upkeep.
