Maintaining our highways requires some thought (Part I of II)
- March 7, 2019
- Auto Extended Warranty, Extended Auto Warranty
- Posted by Peter F
- Comments Off on Maintaining our highways requires some thought (Part I of II)
This topic was interesting to research (and now write on) because I hadn’t really thought of where the money comes from to maintain our country’s highways. One assumes taxes of course, and in this case, that’s correct. But taxes derived from whom or which purchases exactly?
Every time you fill your car up at the pump, the price you pay per gallon goes to several different folks. Nearly 50% gets routed to thedrilling companies that initially extracted the oil. Another 25% goes to the refineries that receive the crude oil and subsequently refine it so we can use it as gasoline. Shave off 6% for the distributors and now we’ve reached 80%, approximately. Who gets that final 20%?
Drumroll please … the federal government. And that 20% is then placed into a fund, the Highway Trust Fund, which is earmarked to finance most of the spending on highways and mass transit. In fact, close to 90% of the Highway Trust Fund is funded through the 20% tax on every gallon of gas purchased in the United States. Now, state by state these taxes vary dramatically. This is because the price of gas varies dramatically over all 50 states.
An interesting side-note, the 20% federal tax (18.4% to be exact), was set back in 1993. However, it’s remained stagnant. That’s to say, it has not been adjusted for inflation, and if it was, it would need to be 73% higher than what it currently is. The government is cutting us a deal here!
Highways and mass transit need to be maintained and cared for, and to finance this the government taxes gas purchases. But what would happen for example if gas purchases plummeted and alternative fuels such as electricity or hydrogen began to flourish? The same (or more) number of cars might still be on the road, but there would be considerably less revenue for upkeep. This scenario was recently introduced by a Senior Lecturer at Boston University’s Questrom School of Business. Dr. Jay L. Zagorsky has been fascinated with the subject and his concerns are indeed important. But the best part about Zagorsky’s concerns is he isn’t just throwing the problem out there without some solutions.
Stay tuned for Part II!