Thursday, 4 October 2012

Recycling congestion pricing?

A grand bargain for roads?

Ron Davis at the Huffington Post argues that there is an economic case for congestion pricing, but that the claimed equity concerns can be addressed by simply recycling the revenues.  In other words, he sees congestion pricing not as a way of replacing existing motoring taxes or raising new revenue, but that the benefits of congestion reduction (and reduced emissions) in and of themselves make it worthwhile to introduce it on a revenue neutral basis.

He said:

The total annual tolls collected should be equal to highway spending (currently $160 billion). The same sum should be granted to taxpayers, divided equally among them. Any money the government collects from tolls gets taken out of taxes.

Hold on, so if the amount collected should be equal to spending on highways, then why return it to motorists?  Doesn't this mean that existing taxes continue to be spent on roads?

Yet there is some sense in what he is arguing.  

He says there should be a tax credit to everyone equal to revenue from congestion pricing, to offset the cost, so that those who pay congestion pricing would already have the money and could choose to drive at peak time, or drive at other times (or not drive at all) and keep some of the money.

He suggests US$800 per head be given to everyone, and the congestion reduction benefit from congestion pricing would be enormous:

Congestion pricing would save between $40 billion to $50 billion per year. $40 billion could pay for 100,000 teachers, an aircraft carrier, a 5% corporate tax cut, a $10,000 check to the million poorest Americans and food for over 3 million starving kids in poor countries for a year. All at once. This savings estimate excludes the economic waste from stop and go traffic. If staggered commute times lowered the economic cost of traffic jams from $130 billion per year by just one-third, the combined savings over a decade would be over $800 billion.

In effect, what he is proposing is to recycle congestion pricing as a new tax.  However, he isn't explicitly proposing that it replace existing ones, but instead keeping existing taxes to pay for roads, whilst congestion pricing would be simply a tool to reward those who don't drive at peak times, but penalise those who do.

It would work, to reduce congestion, but it would be preferable to replace existing taxes instead.  Far better to have motorists pay no additional tax on fuel or vehicle ownership, and then only pay when driving at peak times, rather than keep paying such taxes and then get a refund from a new tax.

Still it is a useful idea.   Far too often arguments against congestion pricing are linked to it being a new tax, and to raise additional money to spend on transport projects.  This shouldn't be the only use of congestion charging, because the key benefits are in improving the utilisation of the network, reducing delays, reducing emissions, encouraging use of the network at other times and usage of other modes.

It's quite plausible and could be economically efficient to create a congestion charge that simply raises money that is then credited to everyone who drives, although it still raises the question of how efficiently one raises funds to pay for the infrastructure costs in the first place.

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