User Fees Stop Pass-through Traffic from Getting Free Ride
In debates over the ill-fated Amendment 7, which proposed a statewide transportation sales tax, opponents often pointed out that if Missouri used sales taxes to pay for roads, trucking companies essentially would get a free ride. Indeed, large trucks, which can do thousands of times the damage of a regular vehicle, make up a significant portion of traffic on Missouri’s interstates. In retort, proponents of using sales taxes to pay for highways have consistently stated that we all benefit from trucking, and that raising prices on commercial vehicles using Missouri highways will simply lead to those companies passing on their higher costs to Missouri consumers. However, Missouri freight data severely challenges this notion.
In the Missouri State Freight Plan, drafted by the Missouri Department of Transportation (MoDOT), 2011 data showed that truck freight totaled over 500 million tons, carrying goods valued at approximately $711 billion. Proponents of using sales taxes to pay for highways argue that if it costs more to move those 500 million tons (by increasing user fees for commercial vehicles), shipping companies will charge higher prices to haul goods, leading to higher prices for Missourians.
However, setting aside the counterargument that charging shipping companies for the highways they use promotes efficient supply chains and local production, the fact is the vast majority of trucking freight in Missouri is not bound for Missouri. For example, of the 500 million tons of freight traffic in 2011, only 39 percent of that freight is either inbound or intrastate trucking. Forty-six percent of traffic by weight simply passes through Missouri. In terms of value of the goods transported, only 26 percent has a destination within Missouri while 61 percent of goods by value transit the state.
This means that if Missouri were to use general sales taxes—or any other type of non-user fee—to subsidize highways, the downstream price benefits would mostly accrue to consumers and producers in other states. Having commercial vehicles pay the actual costs of maintaining the highways might mean that prices rise on Missouri goods, but most of the effect would be exported to other states.
That’s why user fees are almost always preferable, when feasible, to general taxation; the cost of using the highway is internalized into the cost of the good, no matter where the final consumer lives. The use of general taxation to pay for highways would lead to higher prices for Missourians, who would provide a subsidized ride for shipping companies and artificially cheap products to residents of other states.