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Maryland transportation "lockbox" has a big hole

Maryland is considering raising its gas tax. This long-overdue measure would allow some of the general revenues now subsidizing highways to go to the Purple Line, the Baltimore Red Line, and MARC expansion instead.

Photo by maistora on Flickr.

This need has unfortunately gotten mixed up with a proposal, originating mostly from the highway lobby and its supporters, to put transportation money into a "lockbox." The concept is to amend the state constitution to forbid transfers from the trust fund into the general fund.

However, there's a big hole in the bottom of the "lockbox." Contrary to what some say, the money in the transportation trust fund mostly come from revenue sources that would have otherwise have gone into the state's general fund, where it wouldn't be locked.

If I buy a bicycle in Maryland, I pay 6% sales tax and the money goes into the general fund where it pays for education, public safety, the governor's salary, and other state expenses. Cars and gasoline are exempt from the sales tax.

Instead, if I buy a car, I pay the same 6%. but it's called "titling tax" and the money goes into a separate trust fund that is used only for transportation. It's essentially the same when I buy gasoline, where the tax rate of 23½ cents a gallon comes to a little over 8% of the pretax price.

On the surface, it seems like most of the money in Maryland's Transportation Trust Fund comes from drivers. But that's only a surface appearance. In reality, the sales tax exemption gives drivers a subsidy that cancels out most of what they pay into the trust fund. Every time someone chooses to spend money on a car or gasoline, the state's taxpayers are deprived of the sales tax revenue we would have received if something else had been purchased instead.

When you take the sales tax exemption into account, taxes on cars and gas are not "user fees"—money that you pay if you drive and don't pay if you don't drive—they are taxes that you pay whether you drive or not.

The only real user fees that drivers pay into the trust fund are car registration fees and the 2% difference between the tax rate on gasoline and the regular sales tax. Fares from MARC commuter rail and Baltimore buses go into the fund too, as do revenues from BWI airport and the Port of Baltimore. (Washington Metro fares and bridge and tunnel tolls are also user fees, but they go into separate accounts.) All the user fees, taken together, make up less than half of the Transportation Trust Fund.

Not so long ago, drivers were paying much more. in 1993, gasoline was much cheaper and the tax came to 27% of the price. The consequence of the sharp drop in highway user fees has been a squeeze on the transportation budget. The Maryland legislature is now debating whether to fix this by raising the gas tax. Drivers would then pay a slightly larger, but still small, fraction of the cost of the roads they use.

While new transportation revenues are badly needed, putting them into a "lockbox" makes little sense. Most of the money in the trust fund comes out of the general fund in the first place. And for that very reason, the amendment wouldn't really accomplish much. A future legislature, blocked from taking money out of the fund, could simply choose to put less in. It might, for example, change the name of the titling tax to sales tax. The "lockbox" amendment locks the top of a box that has a big hole in its bottom.

But ideas have consequences. The idea behind the lockbox amendment is that drivers pay for the roads they drive on. This idea is mistaken, but it's widely held, and it's an enormous obstacle to sensible transportation planning. The danger lurking in the lockbox is that this damaging misconception could be reinforced, making it even harder to correct failed transportation policies.

Ben Ross is Vice-President of the Action Committee for Transit.

Ben Ross was president of the Action Committee for Transit for 15 years. His book about the politics of urbanism and transit, Dead End: Suburban Sprawl and the Rebirth of American Urbanism, is now available in paperback. 


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Separate jars of money in political budgets make life easier for weasily politicians. It also leads to accounting hell.

Finally, is there any restriction that would prevent general fund money to be used for transportation lockbox?

I thought not.

Bad idea.

by Jasper on Feb 8, 2011 10:32 am • linkreport

Your argument makes no sense.

I'd agree hypothecated taxes in general make no sense. Then again, neither do user fees.

But pretending the sales tax on gasoline ISN"T going into a trust fund -- and same with sales tax on cars -- is beyond silly.

by charlie on Feb 8, 2011 10:42 am • linkreport

This isn't a clear description of what's happening.

The sales tax you pay on a car goes into the transportation fund and not the general fund. That's what we're saying.

Mr. Ross says (sort of) describes a process where cars pay a 6% sales tax, 6% titling tax, and then get a full refund on the sales tax portion, all in one action.

Does that constitute relief from the sales tax on cars? I think that's a bit less clear.

The point on the gasoline tax is also not stated with clarity, but the argument is that it's exempt from sales tax that it would otherwise have to pay, therefore that is a tax break.

Or maybe this is a better way of explaining: the sales tax applies to all goods unless there is a legislative exception. The sales tax revenue is ALREADY pledged to the general fund. Any diversion of sales tax revenue (without a pay-go replacement) constitutes revenue loss to the general fund because the diverted revenue was pledged to the general fund. Since cars and gasoline are legislatively exempt from sales tax, there is an implicit subsidy even though purchasers pay a different tax.

Government has reasonably predictable expenses related to transportation they have to pay every year. They also receive reasonably predictable revenue from the sale of cars and gasoline. There is a logical case that the revenue stream should offset the annual expense with a buffer for unexpected events.

All this confusion really makes a different point. The government should reexamine how it funds different operations. Higher gasoline taxes are probably a good thing; using that money to pay for transportation projects is also probably a good thing. The "lock box" issue is somewhat of a distraction--money is fungible.

by WRD on Feb 8, 2011 11:15 am • linkreport

@Ben Ross (or other knowledgeable people)

Can you explain where the rest of the money comes from? It seems to me that there is also a direct subsidy from the general fund. MDOT says that the source of funding is

19% Fuel Taxes
17% Vehicle Titling Taxes
15% Registration and MVA Fees

4% Corporate Income Taxes
6% Sales and Use Tax
3% Other

11% Operating
6% Bonds
18% Federal Aid

The last 3 are pretty obvious and not a tax in any sense. But the middle three items are coolectively almost as large as registration fees. It looks like there is a dedicated portion of the corporate income tax--that is a general fund subsidy any way you look at it. And what about the "other" and "sales tax"? And frankly, since the bonds are exempt from Maryland income tax, I guess some fraction of the interest cost is a tax subsidy as well.

On the other hand, some fraction of titling tax represents people moving into Maryland and in effect paying an interstate import tax. That part isn't a subsidy.

by JimT on Feb 8, 2011 12:22 pm • linkreport

Jim - You are correct that the 10% from the corporate income tax and sales tax are a direct subsidy from the general fund.

I am not sure what goes into the "other."

The registration and MVA fees are partially user fees, and partially not. Where you draw the line is somewhat arbitrary. There's a good argument that car registration fees are user fees, even though you pay the same per car even when you drive less. At the other extreme (this is a very small item), fees for non-driver ID cards are clearly not driver user fees. I don't really think a drivers license fee is a user fee for driving either, because (unlike cars) most people get them even if they drive very little.

by Ben Ross on Feb 8, 2011 12:33 pm • linkreport

Small nit to pick, but potentially with consequences: the gas tax is an excise tax, since it is the same per unit regardless of sales price. Right now, with gas at around $3.00 a gallon, it amounts to about 8%; at $3.91 it becomes 6% and, obviously, if gas goes above that price it becomes a relative tax bargain compared to a sales tax.

by Elaine on Feb 8, 2011 12:37 pm • linkreport


Excellent summary. Thank you for pointing out that ideas matter. Every driver I know believes they are fully paying for the roads, but not one of them would suspect they are immune from the normal sales tax.

Another area that many drivers fail to appreciate is that the public right of way that we have paved over to make it suitable for cars to drive on was not paid for by any trust fund. Rather, the right of way is a public good, held in perpetuity by the public at-large; the pavement and signals are merely "improvements". I'll make a distinction that it is the public at-large that is sovereign owner, not any specific class such as drivers, or cyclists, or pedestrians. It is for the public to decide, over time, what is the best use of this publicly held good.

We might make a special exception for Freeways, the land on which they sit was sometimes acquired with trust fund money. But even there, the bulk of the interstate system was taken from existing state routes and highways, which evolved originally from wagon and horse tracks. A drive on Boston's winding streets verifies the horse and cart origins of many roads.

Basic education at the gas pump would help, perhaps a chart describing the different taxes and market prices that add up to the final price individuals pay at the pump. I suspect, the sense of entitlement which drivers often exhibit stems from misinformation and an assumption that they are the owners of the public right of way.

by Will on Feb 8, 2011 4:01 pm • linkreport

We might make a special exception for Freeways, the land on which they sit was sometimes acquired with trust fund money.

As the vast majority of freeways are new-alignment, replace "sometimes" with "mostly". Aside from that, you have a point.

by Froggie on Feb 8, 2011 7:28 pm • linkreport

The point about the gas tax being an excise tax is very important-it really is a user fee. Using the "rate" of 6% as it stands today makes it equivalent to the sales tax in a way it won't ever be, because they are taxes on a different base (gallons of gas vs. purchases in dollars). Gas tax revenue is never dependent on the price of gas or total gasoline sales, but the sales tax is. The gas tax generates the same amount on 1 million gallons regardless of how much they cost.

Also, remember that if the Trust Fund was abolished and the sales tax on all products went directly to the General Fund, sales tax money would still be spent on Transportation. Calling it a "subsidy" for transportation isn't accurate-the State has chosen, wisely or not, to limit the way it spends certain revenues.

Remember, too, that the purpose of taxes (and user fees, for that matter) is to collectively pay for public goods that we would never undertake individually. From an equity perspective, taxes should fall proportionally on those who benefit according to their benefits. But everyone benefits from the state's transportation system, regardless of their use. Their groceries, household goods, and the other public services they use all require that system to be functioning. This is why I think it's fair to put a portion of the burden of funding the system on revenues like the sales tax.

by Aaron on Feb 8, 2011 8:30 pm • linkreport

@Aaron. While you are correct that subsidizing infrastructure is not automatically a bad idea, your logic for concluding that it is therefore not a subsidy is unclear. "Subsidy" is a value neutral term that merely reflects the source of funding, not the beneficiary of the activities funded.

This thread started with the premise that those who want the trust fund to be immune from being raided, are overstating the extent to which users are funding the trust fund. The "lock box" concept is legitimate to the extent that the goal is to prevent the trust fund from becoming a rainy-day fund (especially for those who prefer states to be mini Herbvert Hoovers rather than engage in countercyclical spending). But if it was added to the Constitution, the Legislature could still divert annual contributions from any of the sources, be they user fees or the general fund--and it certainly could call the titling fee a sales tax, at least for nely purchased vehicles.

by Jim Titus on Feb 8, 2011 10:58 pm • linkreport

Given the vagaries of taxation, and especially considering that other items (such as food) are also likewise not subject to the sales tax, this is a weak argument, at best. We all know that there is some subsidization of driving. But saying it's subsidized because gas isn't subject to the sales tax is like saying farming is subsidized because groceries aren't subject to the sales tax (and for the most part, they aren't in Maryland)...

by Froggie on Feb 9, 2011 6:47 pm • linkreport

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