Fuel taxes—a competitive advantage for Minnesota’s economy

By Kevin McCarthy

Currently the topic of roads and infrastructure is being scrutinized more than ever. MnDOT has just released their 20-year Minnesota State Highway Investment Plan, known as MnSHIP. According to the Star Tribune, the plan calls for $30 billion in spending over the next 20 years, but estimates funding of only $18 billion, a shortfall of $12 billion, or about $600 million a year. While most of us think about how congestion and roads affect our daily commute, I think it’s important to also understand how they affect our competitiveness. Simply put, the more expensive it is to move product in or out of a manufacturing facility, the less competitive that facility is. When a facility is less competitive, there are fewer jobs, which can in turn reduce our growth as a state. So do we have a real need to invest in roads?

First, it may help to understand just how much of what we consume moves on roads. In 2012, according to a federal report, 73% of all goods moved by value and 70% by weight were moved by truck. This number has held relatively constant over the years and is similar to the numbers that the Council of Supply Chain Management Professionals (CSCMP) has put out in its annual state of logistics report for the last 20 years. Not only is trucking the dominant way goods are moved, but with 84.9% of all truck movements traveling less than 500 miles, road quality becomes an inherently local and regional problem. So clearly roads do and will play a significant role in the movement of goods.

How does our spending compare with the rest of the world?

The Economist reported that the U.S. spends 2.4% of GDP on transportation. This compares to Europe’s investment of 5% and China’s investment of 9% of GDP. Our current level of funding for transportation infrastructure is significantly below its peak of 5% in the early 1960s. If we wish to continue to have the transportation infrastructure we need to stay competitive in a world market, we must address our inability to fund transportation infrastructure. This lack of funding is directly related to the lack of growth in user fees—most notably, the federal fuel tax, which has not changed in 20 years. In Minnesota, we have increased our user fees, but not at a rate that keeps up with inflation. But why user fees? Why not just pay for infrastructure out of the general tax base? There are several reasons:

  • Using the general tax base is likely not fair. It could force competitors of trucking companies to invest in infrastructure that would make them less competitive.
  • If you don’t use it, you don’t pay for it. Unlike a general tax, you can avoid paying a user fee by simply not using the roads.
  • It could discourage road use. That’s right. By making road use more expensive, it gives shippers an incentive to be more efficient in their movement of goods. It could also discourage personal travel and make mass transit a more viable option.
  • It’s green. The better the mileage a vehicle gets, the less tax you pay.
  • It’s extremely efficient.
  • It’s acceptable to the business community and to the trucking community. When was the last time you heard the Chamber of Commerce suggest that increasing a tax or user fee was a good thing?

Want to learn more about how fuel taxes work? I’d suggest checking out the Institute on Taxation and Economic Policy. Want to learn more about our transportation infrastructure needs? Visit the U. S. Chamber of Commerce’s site on the transportation performance index.

Kevin McCarthy is Director of Consulting Services at C.H. Robinson, and a member of the CTS Executive Committee.

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Posted in Freight, Infrastructure, Transportation funding

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