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Costs, Benefits, and Bad Tax Proposals (MO Amendment 7)

Costs, Benefits, and Bad Tax Proposals (MO Amendment 7) published on

One of the most fundamental concepts in modern economics is the idea of marginal analysis. If the marginal benefit of doing something (i.e., the benefit you couldn’t otherwise obtain) is greater than the marginal cost of doing it, then a rational maximizer should do it.

A related idea is that those who benefit (the most) from something should be the ones to pay (the most) for it. Obviously, if you value something less than I do, then my marginal benefits of having or using it are greater and the marginal cost I’m willing to pay are likewise greater.

Herein lies the economic principles behind Missouri’s Amendment 7, which would impose a “temporary” 3/4-cent sales tax to fund road construction: Who should pay for road and transportation infrastructure? Those who drive on the roads (as has been traditionally the case) or consumers who purchase non-food consumables? The economic logic is pretty clear: those who directly benefit from the transportation infrastructure.

Not only does it make sense from a simple benefit perspective, but taxing those who use the roads for road improvements creates more efficient incentives throughout the entire economy. Here’s why:

If you simply slap on a sales tax, then end-consumers are stuck paying those taxes whether the products they purchased used the roads extensively, or just a little bit. Opponents will also argue that the sales tax is more regressive. While that’s true, it’s also a pretty weak argument–even if you care about regressivity. If the cost of driving products to the store goes up, the costs to consumers will go up–and it will still be regressive.

However, this is where taxing the transportation directly is critically important. Taxing road-intensive transportation more for road improvements will change the relative cost of transporting by roads. Higher road transportation costs will encourage shippers to seek alternate, more fuel-efficient means of transportation. Competition at the transportation stage will limit how much of the cost increase gets passed onto consumers, making the cost less regressive. It would also reward consumers (and producers) who choose less road-intensive products.

Taxing consumers at the point of sale does nothing to encourage more efficient use of our transportation system and it eliminates any competitive pressure between modes of transportation that would reduce the costs consumers pay for all the products they consumer. Little wonder the trucking industry is behind this proposal.

But the amendment is even more devious than that. It would prohibit any increases in fuel taxes for the duration of this “temporary tax” and would also prohibit any attempt to move toward toll-roads in the State. Ultimately, toll roads are the most efficient funding mechanism for road construction and improvements, since the road is paid for by the people who actually use it. Prohibiting even an experiment of toll-funded roads anywhere in the state for an indefinite length of time (sure, call it 10 years if you believe it will end then) is cutting off even the chance of a more efficient future that would benefit everyone–except the heavy roads users.

The construction industry (all those “stimulus” jobs!) and the emergency first responders (“we’ll be able to save you better with this tax”) would benefit the same from road construction no matter the funding source. Ultimately, this amendment is a little more than a special interest bone for the trucking industry. If we’re serious about funding roads responsibly, we should demand better of our State legislature than Amendment 7.

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