1 Urban Economics Lecture 7b More on Urban Transportation How do we actually pay for highways? Freeways are mainly paid for by the Federal government, using the Federal excess tax on gasoline of $.184/gal. Calif also imposes an excise tax of $.18/gal. that is used to pay for state highways. These taxes are earmarked for highways or mass transit. Calif also imposes sales tax on gas, but this is not earmarked for roads. Total CA tax on gas = $.32/gal. Use of the Federal and state gasoline taxes to pay for roads means that urban residents subsidize rural residents, since there are more miles of roads per vehicle in rural than urban areas. Local roads are financed by fees levied on developers and by a local increase in the sales tax of ¼%. Note that the purchasing power of the excise taxes has declined over time, because of inflation and improvements in gas mileage.
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2 Trucks versus cars: •Cars and trucks share the highways and both pay taxes to support them. oAll of the wear and tear on roads is caused by trucks and weather, not cars. But cars pay most of the gasoline taxes. So cars subsidize trucks. oBut cars cause congestion and pressure to wide urban freeways.