Motorists Do Not Pay Their Fair Share

By Dom Nozzi

The point is made over and over again. Motorists pay their own way in the costs they impose on society (road construction and maintenance, air and water pollution, “oil wars,” injuries and deaths, etc.) because they pay gas taxes.

Those making this point are wrong.

Over the years, I have done quite a bit of research on this topic, and have learned a number of little-known facts.suburbia-reburbia-image

A Harvard study found that motorists pay only 25 to 40 percent of the cost of their transportation. The remaining costs are borne by employers (through such amenities as free parking), by other travelers (due to increased congestion, reduced safety, etc.), and by governments and taxpayers who pay for the expansion and maintenance of roads.

Several additional studies have found large subsidies for autos.

Gas taxes and user fees pay for only 60 percent of the $35.4 billion spent by governments in 1990 to build, modify, and repair roads. The remaining money came from taxpayers and other sources (mostly sales taxes and property taxes, which non-motorists pay). For example, motorists in the greater Boston and Portland (ME) areas pay — through user fees such as gas taxes — only 24 to 53 percent of government outlays for driving.

Taxpayers pay a $2.4 billion annual subsidy to provide road infrastructure through property taxes. Over 80 percent of local government spending for auto infrastructure is raised through general fund taxes.

The costs not directly paid by motorists each year include $13.3 billion for highway construction and repair, $7.9 billion for highway maintenance, $68 billion for highway services (police, fire, etc.), and $85 billion for free parking.

In Minneapolis, less than half the $90 million the City spends on driving-related projects comes from transportation user charges (such as gas taxes) and nearly a quarter of all city residents do not own a car, yet all residents pay for road construction and maintenance through property taxes.

The social costs of driving that are not paid by the driver amount to a $300 billion subsidy each year. The EPA (Lowe, 1988) found that if employees were directly handed this subsidy, transit and bicycle use would go up and auto traffic would go down by 25 percent. A Seattle study found that society pays a $792 subsidy to each motorist each year (excluding a $1,920 annual free parking subsidy). In New York City, the metro area loses $55 billion each year in hidden auto costs associated with safety and environmental damage. More than 90 percent of all commuters park for free at work.

The market demand for dispersed, auto-dependent residential property is artificially high due to the heavy income tax subsidies for owner-occupied homes, federally-funded wastewater systems, provision of police and fire services, provision of postal and garbage services, as well as the road and parking subsidies.

When new developments are built in areas remote from water plants, wastewater plants, and schools, it creates higher incremental (or “marginal”) costs for adding new capacity to these services. By contrast, the marginal cost of new development near such services is lower. However, because costs are evenly distributed among all citizens by average-cost pricing, those who live in remote locations pay proportionately less. As a result, citizens living in remote locations enjoy an enormous price subsidy courtesy of citizens living closer to the services. And because new homes in remote locations tend to be only affordable for high-income buyers, the inequity results in poorer citizens subsidizing richer citizens.

In Tallahassee, capital costs for sewer hookups in central city neighborhoods are about $4,450, compared to $11,450 in remote, low-density neighborhoods, yet everyone pays the same hookup cost regardless of their location. “The poor families living near the sewer plant not only have to endure its odor, but also have to pay far more for their sewer hookup than it actually costs government to serve them. Meanwhile, the affluent lobbyists and politicians, who typically reside in distant suburbs on the north end of town, escape both the odors and the full bill for their waste treatment.”

Dispersed, auto-dependent development in Loudoun County, Virginia, is a net loss to the tax base of $700 to $2,200 per dwelling unit. In San Jose, California, planners determined that such development would create annual deficits of $4.5 million compared to a $2 million surplus if future development is compact.

In a case study in Lexington, Kentucky, a new development in a remote, auto-dependent area increased private and public costs by $272,534 per year. Some of these costs were borne by residents of the development in the form of higher travel costs (they presumably paid less for land and housing than they would have at a more accessible location). The remaining costs, however, were borne by other consumers and taxpayers in the area, who ended up subsidizing the remote development. Note also that the social costs of auto use were not factored into the calculation, even though such costs are comparable in magnitude to the direct costs of the auto use.

The Natural Resources Council (1993) notes that as long as gasoline is cheaper than bottled water, it is easy to use too much of it. The real cost of gas, if all of the social, financial, and environmental costs were factored in, has been estimated to be over $3 per gallon. Another study puts the cost at $2.50 to $5.00 per gallon.

If motorists had to pay the full cost of driving, transit would require less (possibly no) subsidy to operate efficiently.

An important reason why so many citizens are attracted to remote sprawl subdivisions is that hidden subsidies generally make such residential areas less costly for households, even though this choice is more costly for the community overall. “If some government is going to wave a lot of money in my face to move someplace, I’ll go…People want to live in low-density environments only if they can shift the costs on to someone else.”

Free parking is anything but free. As Donald Shoup points out, for example, free parking provided by retailers results in the price of goods and services inside the stores where free parking is located to be higher. The price of goods and services are higher to allow the retailer to pay for the land and maintenance costs of the “free” parking. If the parking was properly priced – in other words, charging a fair user fee for parking – the price of goods and services inside the stores would be lower.

In sum, American motorists are among the most heavily subsidized people on earth. Motorists pay nowhere near the costs they impose on society. Such a “distorted price signal” induces a great many Americans to own cars and drive cars a lot more than they otherwise would. Starting to eliminate such motorist welfare would substantially reduce driving, significantly increase bicycling, walking and transit use, reduce air and water pollution, reduce sprawl, increase affordability, improve household and government financial health, improve civic pride, and create more physically healthy communities.

Isn’t it time to take motorists off welfare?


Visit my urban design website read more about what I have to say on those topics. You can also schedule me to give a speech in your community about transportation and congestion, land use development and sprawl, and improving quality of life.


Or email me at: dom[AT]

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1 Comment

Filed under Economics, Politics, Urban Design, Walking

One response to “Motorists Do Not Pay Their Fair Share

  1. Pingback: Save Seattle: Tax, License & Insure Pedestrians | The Urbanist

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