Driving is Subsidized?

By Robert Bernstein   |   April 5, 2022

Do you know how much private motor vehicle use is subsidized in the U.S.? Here are examples of motor vehicle expenses not paid adequately by user fees:

“Free” parking. Climate impacts. Land used for roads. Road maintenance. Pollution deaths and illness. “Barrier effect” of blocking access to pedestrians and bicyclists. Military expenses to maintain global oil flow. Congestion delays that affect other road users. Medical expenses for collisions.

The U.S. Office of Technology Assessment last estimated these costs in 1994 at one to two trillion dollars each year in the U.S. This is the equivalent of paying motorists 10 to 20 dollars per gallon. We now know the numbers are far higher due to climate impacts.

Fuel prices are now rising mostly due to Putin’s brutal attack on Ukraine and the resulting boycott of Russian oil. People are complaining that they can’t afford these increased costs. But they have no idea how much they were already being forced to subsidize driving, even if they never drove at all.

Pandering politicians are suspending the minuscule fuel tax that doesn’t even pay to pave the roads. This is an economic lose-lose. Prices at the pump are set by supply and demand. If you cut the fuel tax, the price stays the same, but the money goes to the oil company instead of to public funds.

Governor Newsom instead is offering a flat $400 allowance per vehicle. Why stop there? If we are going to have trillion-dollar subsidies for transportation, why not just give that out as a cash payment to everyone? Which would be about $6,000 per year. And then charge the true cost of driving. Do you think this would change our transportation and land use system in the U.S.?

Sometimes a problem is so huge that it is invisible. After you read this article, you will probably dismiss it and get on with your life. We take it for granted that it is “normal” for driving to be cheap enough that Americans drive 14,000 miles a year on average. But this is almost twice what the average European drives per year.

No. Eurasia is bigger than North America. It is because they pay more of the true cost of driving and their land use and public transportation system reflects that cost. Instead of sitting in traffic jams that move at a crawl, they can ride modern, high-speed rail.

As I noted in my previous article, how are we ever going to make these improvements to our transportation system if we keep making driving artificially cheap? As it is now, pedestrians, bicyclists, and transit users have to beg each year for scraps. They pay far more into the system than they get back. Yet, the perception is exactly the opposite! After all, don’t motorists pay fuel taxes and registration fees? Yes, but they are pathetic in comparison to the subsidies given to motorists.

Consider the barrier effect. In the four decades I have lived here, almost every freeway crossing has become hostile to pedestrians and bicyclists. Double turn lanes have been added to move cars quickly. But somehow there is never enough money for even one new bike or pedestrian crossing. Shouldn’t freeway users pay for crossings of the barrier they have created that divides our region?

The U.S. subsidizes home ownership with a mortgage tax deduction. This favors suburban sprawl. Why not give a subsidy instead to urban apartment dwellers who have lower environmental impact? Employers give “free” parking to motorists. Why not give a “cash out” of that subsidy to employees who refrain from driving most days? What would you do with that $2,000 cash? Twenty to 30% of employees in fact will switch from driving.

Can we at least change from fixed costs of insurance by use? Charging for basic liability insurance at the pump is a win-win. Everyone is covered and if you don’t drive one day, you don’t pay for insurance that day.This has been proposed in Colorado and in California, but never gets approved. Why? Because when you look at the price at the pump it looks so high! About $1/gallon for the bare liability minimum in California. $3/gallon for full coverage. If you hide it in the form of subsidies and fixed costs, you can put it out of sight and out of mind. Just as you will probably do with this article.  

Visit swt.org/subsidy to see the numbers


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