Hey, Buddy, Can You Spare A Gallon?

My English (actually expat) cousin wrote today that the price of "petrol" in the north of England was in the neighborhood of $10 US per gallon. If that's not gloomy enough for you, Daniel Gross tells us that we are in a hole. And everyone—from top to bottomn—just keeps digging. "We're toast" is the mantra of these times. If this is (fair & balanced) weltschmerz, so be it.

[x Newsweek]
Gilded Highways
By Daniel Gross

(Summary: Why the government is spending $100 billion a year to get you to drive more.)

The Transportation Department reported that Americans drove 9.6 billion fewer miles in May 2008 than in May 2007, a 3.7 percent drop. The result: rising demand for mass transit and declining revenues for the Federal Highway Trust Fund, which is funded by gas taxes. The Bush administration's counterintuitive policy response, as the New York Times reported, has been for the Highway Trust Fund to borrow funds from the department's mass-transit account.

Naturally, many urban-dwelling, car-hating socialists (as well as suburban-dwelling, Jeep-driving moderates like me) believe this is precisely the time to put more government funds—not less—into alternate modes of transportation: natural-gas powered buses, bicycle-sharing programs, trains, light-rail systems, subways, ferries, and rickshaws. The notion that the government should invest more in mass-transit infrastructure has always raised conservative hackles. As they sit on the Amtrak Acela, or ride the New York City subway or Washington, D.C., Metro, to their think-tank jobs or to the Wall Street Journal's offices, free-market types frequently fulminate against the systems that ferry them around. (New York Times house libertarian John Tierney's "Amtrak Must Die" from 2002 is a classic in the genre.) To such critics, money spent on mass transit, such as the $1.3 billion 2007 appropriation for Amtrak (here's Amtrak's 2007 annual report) represents an unconscionable waste of taxpayer funds. With their top-down bureaucracies and public ownership, they argue, mass-transit systems can never hope to compete economically with the private-sector alternative—driving gasoline-powered cars. They can't compete culturally and socially, either, since rugged American individualists prefer sitting by themselves in traffic to rubbing shoulders with strangers. And for those few areas where it does make sense to have mass transit, the market will step in and provide.

This is one of the oldest political arguments in America. For a good chunk of the 19th century, the prospect of the federal government supporting "internal improvements"—i.e., canals, ports, roads—was a major source of partisan contention. Ultimately, the Jeffersonians and Jacksonians (and their heirs) lost out to the Whigs (and their heirs). Whether it was the Erie Canal, the first transcontinental railroad, or the interstate highway system, state and federal resources have repeatedly been deployed to build new types of transportation infrastructure that the private sector couldn't, or wouldn't, fund. Over time, these investments paid huge economic, social, and national-security dividends to the country.

What hasn't been acknowledged is that the automobile is supported by a government subsidy that dwarfs anything provided to mass transit. How big is the subsidy? By my (admittedly extremely crude) calculations, it could total nearly $100 billion per year. Americans can drive so much because there is an extremely extensive system of (largely free) roads for us to use. Despite some private-sector efforts, maintaining and building the nation's roads remains almost exclusively the preserve of government. Data from the Census Bureau on construction spending shows that this year, public spending on highways and streets is running at an annual rate of about $75 billion.

But that's not all. Tax credits and breaks for particular types of economic activity constitute a public subsidy of that activity. Taxpayers effectively subsidize home ownership through the mortgage interest deduction. They subsidize the use of mass transit through programs that permit people to purchase mass-transit tickets with pretax money. And taxpayers subsidize the purchase and operation of gas-powered automobiles in at least two big ways.

First, just as they can with other types of equipment, businesses and self-employed individuals can write down the cost of cars and trucks they own against their taxable income. This decade, the relevant portion of the tax code dealing with the issue, Section 179, was changed to provide extra taxpayer support for the purchase of very large cars. In 2003, as part of an effort to stimulate business investment, the law was changed to significantly increase the amount of deductions businesses could take on equipment, including vehicles that weighed more than 3 tons. (In the past, that category would have been limited to commercial vehicles, such as pickup trucks and moving vans. But in SUV-crazy America, that also means Hummers and Escalades.) So if a Realtor bought a $75,000 Hummer and used it mostly for business, she could take a $25,000 deduction from her taxable income in the first year of ownership. The stimulus package passed earlier this year included provisions that boosted the amount of total deductions businesses could take on equipment. But taxpayers aren't just subsidizing the purchase of gas-guzzlers by businesses. Thanks to tax credits for hybrids, they're also subsidizing the purchase of gas-sippers by individuals.

Self-employed individuals and businesses can also deduct the costs of operating a car for business purposes from their taxable income. In light of higher gas prices, the Internal Revenue Service this year boosted the mileage allowance to 58.5 cents per mile. A self-employed salesperson who drives 5,000 miles a year and is in the 33 percent tax bracket can thus save about $1,000 in tax payments. (The language of the allowance suggests that it applies only to cars—not to bicycles, scooters, or motorcycles.)

[Daniel Gross writes the “Moneybox” column for Slate and contributes to the “Economic View” column of the New York Times. He joined the staff of Newsweek in early July 2008. Gross has appeared on CNBC, CNN, Fox News Channel, The News Hour with Jim Lehrer, C-SPAN, and on more than 35 radio programs, including NPR’s "Fresh Air with Terry Gross" (no relation). In 2001, he was a fellow at the New America Foundation. He is the author of three books: Forbes Greatest Business Stories of All Time (1996); Bull Run: Wall Street, the Democrats, and the New Politics of Personal Finance (2000), and Generations of Corning: 150 Years in the Life of a Global Corporation, 1851-2001 (2001), co-authored with Davis Dyer. A graduate of Cornell University, Gross holds an A.M. in American history from Harvard University.]

Copyright © 2008 Newsweek, Inc.

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