Just Fix It Wisconsin

Op Ed: Gov. Scott Walker holds down gas tax — and growth 6/29/2016

In violation of conservative “pro-market” economic principles, Gov. Scott Walker has once again decided that Wisconsin’s gasoline tax will not be raised. Instead, to finance road maintenance and repair, he prefers to borrow $850 million, adding that amount to the state’s debt. Since even this large amount of borrowing will not be sufficient to finance the projects being planned for the coming year, he says that some will have to be slowed down or not even begun.

It is hard to imagine a more effective action for inhibiting Wisconsin’s economic growth than slowing down progress on the state’s badly deteriorated roads. Our vital transportation arteries are already needlessly closed or congested; many roads, bridges and freeways that commuters routinely use are in dangerous condition. Caravans of vehicles moving sluggishly in rush hour represent lost productivity and its consequence: a less competitive Wisconsin.

The most maddening aspect of this decision is that it is totally unnecessary. Raise the gas tax. Remarkably, compared to borrowing to fix roads, financing via the gas tax is the conservative and pro-market solution. Like all prices in a market system, the gas tax requires those who impose costs on our transportation network to pay for what they use. When the gas tax is high enough to pay for the cost of the road network, it functions just like prices in private sector market transactions.

 We need not abandon market principles just because roads are in the public sector. Gasoline usage identifies the road user, and the amount of gasoline consumed is a proxy for miles driven. Consequently, roads are one public sector service where the key element of market efficiency, i.e. price, is easily implemented.

Rather than the gas tax user charge, the governor’s plan is to either delay needed repairs or to use general taxes and government borrowing to pay for roads. Another economic principle comes into play: public debts are deferred taxes. That borrowing will have to be repaid with interest in the future with revenue from more general taxes (sales and income). That means that future taxpayers will one day be required to redeem the bonds when they mature. So, the “no new taxes” reflex doesn’t even keep taxes down. It just blocks rational transportation policy.

This unnecessary increase in the debt burden of the future taxpayers also represents a cross-subsidy from future taxpayers to current road users. This cross-subsidy places a needless twofold burden on the future to subsidize the present. First, a portion of today’s transportation costs will be borne by future taxpayers and not by today’s drivers who are causing those costs. Second, a portion of the costs of car-oriented transportation are imposed on those who want to drive less. For example, many baby boomers are choosing a more urban lifestyle after their kids have flown the nest, and many “millennials” choose to live downtown without owning a car. Why should those who want to drive less be required to subsidize those who want to drive more?

Why now? There are three compelling reasons. First, the forecast is for an unexpectedly large state budget deficit in the upcoming biennium. The revenue from gas tax user charge would help reduce that deficit. (In fact, the gas tax revenue could be used to repay early the money borrowed for roads in past years. Moreover, to avoid a repeat of inadequate funding, the gas tax should be raised through annual automatic inflation adjustments.) Second, it would only take an upward revision of as little as 10 cents per gallon to balance our transportation budget. Third, as roads get fixed, drivers will save more in car repair costs than the increased amount they pay for gas purchases.

Finally, using the gas tax to pay for repair and maintenance of our transportation infrastructure contributes to economic growth by speeding up the repairs of the road network and getting the traffic moving at design speed. The current state of dilapidation helps make Wisconsin a slow-growth state with slow growth in both jobs and wages. A competitive advantage awaits those states that get out ahead of the nation on fixing the roads.

William L. Holahan is emeritus professor and former chair of the Department of Economics at the University of Wisconsin-Milwaukee. Charles O. Kroncke is retired dean of the College of Business at UWM. They are co-authors of “Economics for Voters.”