27.3.16

A CASE FOR PROPER INCOME ACCOUNTING.

Momentum's Elly Blue takes on the fantastic illusion that motorists pay for their roads.
What if I told you that by driving a car you become a freeloader, a drain on the economy? That people who bicycle instead are subsidizing a road system that they are largely not welcome on? In order to break even on the cost of roads and pay for every driver who uses them each year, we would need 54% of commuters using a bicycle as their sole means of transportation.

It’s not great news for most people. After all, driving a car is extremely expensive; and if you live in the US a car may be your best bet or only way to get to work and otherwise go about your life. Unfortunately, it is also true. Driving is one of the most heavily subsidized things we do on a daily basis.

Cars pay for about half of the cost of our roads, all told. That’s it. Half.
Polemical, yes. But in that reference to "best bet or only way to get to work" comes a trap.
Most of what we pay for the roads is not paid directly, but through our taxes. Every time we pay sales tax on a purchase, property tax on our homes (directly, or indirectly through our rent), or income tax on what we earn, a portion of that goes directly into our transportation system.

A portion of all these taxes are paid into a general fund, which is where most transportation money comes from. But the real costs of building roads end up being much  higher over the years than what the budget can afford. A growing amount of road costs are paid for with borrowed money. We must eventually pay off these loans through our taxes, with interest that can amount to two, three, or more times the original cost of the project.

Worse, this funding gap increases every year. With the economy dragging, we drive less, and as fuel and material costs rise, construction grows more expensive.

Roads are enormously expensive to build and maintain. If you look only at the highway system, the user fees paid by drivers come much closer to paying for them than half, though the system still operates at a loss. But if you look at local roads, on which most of our daily travel happens, the gap is even wider. The cost to maintain local roads is, on average, more than 6 cents per mile for each car each year. How much of this do drivers actually pay? Less than a penny. What does this mean for bicycling? While people do not pay to ride bicycles on the road, bicycling also costs almost nothing – less than 1% of money spent on transportation infrastructure goes to anything bike-related, and bicycles no not contribute significantly to other road-related expenses like potholes, crashes, or congestion.

People who ride bicycles also pay taxes, which means they often pay more into the road system than they cost it.
That closing sentence raises the fundamental challenge of governance.  Somewhere, there is a sweet spot at which tax-funded social and physical capital becomes symbiotic with the social and commercial activity that people also engage in.  To one side of that sweet spot, to the left, if you will, is the slough of despond in which government becomes parasitic on commerce, and destructive of, social and physical capital.  To the other side, to the right, is the cesspool of sin in which the rent-seekers become parasitic on government, which destroys social and physical capital, albeit in a different way.

Hidden in the passage, however, is a subtlety, the trap of conflating stocks and flows.  Roads, like any other physical capital, generate a stream of returns.  Thus, borrowing to build the capital produces an asset (the road) and a liability (the bond obligation.)  It is not the borrowing that is bad per se, it is the descent of road construction either into the slough of despond or the cesspool of sin.

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