States should seek to fund infrastructure through user taxes and fees as much as possible, internalizing the costs associated with using the state’s transportation systems. Though politically unpopular, motor fuel taxes, license fees, and tolls are all relatively good applications of the benefit principle-the idea that the people paying the taxes and fees should be the ones to benefit from them. States that cannot rely on the oil and gas industries for funding have tried a variety of funding sources to come up with the money necessary for infrastructure upkeep. Alaska (17 percent) and North Dakota (29 percent), which both rely heavily on revenue from severance taxes, raise the lowest proportion of highway funds from transportation taxes and fees. Four states (California, Indiana, Montana, and Tennessee) raise enough revenue to cover their highway spending, but 46 states and the District of Columbia must cover the difference with tax revenue from other levies. The amount of revenue states raise through taxes on infrastructure and transportation vary to a significant degree-as do the sources. As a result, most states contribute revenue from other sources to make up differences between infrastructure revenue and expenditures. Between developments in vehicles’ fuel economy, increased sales of electric vehicles, and inflation, taxes on motor fuel generally raise less revenue per vehicle miles traveled (VMT) than they did in the past. Traditionally, revenue dedicated to infrastructure spending has been raised through taxes on motor fuel, license fees, and tolls, but revenue from motor fuel has proven less effective over the last few decades. A similar discussion is happening in many states, where lawmakers are grappling with questions over the future of infrastructure revenue and spending. Since President Biden unveiled his administration’s proposal for increased infrastructure spending in the American Jobs Plan, debate over how to fund investments in infrastructure has taken center stage. Per tradition in Washington, D.C., every week is infrastructure week, but currently, this joking description holds especially true. However, neither the federal government nor the vast majority of states collect enough taxes through these levies to cover infrastructure-related spending. This system constitutes a well-designed user fee system, as taxes paid by users of infrastructure are dedicated to building and maintaining infrastructure. The states also collect fees from toll roads and other road charges. Tax Foundation - Both the federal government and the states raise revenue for infrastructure spending through taxes on motor fuel and vehicles.
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