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Just pricing: the distributional effects of congestion pricing and sales taxes

Abstract

Those who oppose tolls and other forms of road pricing argue that low-income, urban residents will suffer if they must pay to use congested freeways. This contention, however, fails to consider (1) how much low-income residents already pay for transportation in taxes and fees, or (2) how much residents would pay for highway infrastructure under an alternative revenue-generating scheme, such as a sales tax. This paper compares the cost burden of a value-priced road, State Route 91 (SR91) in Orange County, California with the cost burden under Orange County’s local option transportation sales tax, Measure M. We find that although the sales tax spreads the costs of transportation facilities across a large number of people inside and outside Orange County, it redistributes about $3 million (USD) in revenues from less affluent residents to those with higher incomes. The entire Measure M program redistributes an estimated $26 million from low-income residents to the more affluent. Low-income drivers as individuals save substantially if they do not have to pay tolls, but as a group low-income residents, on average, pay more out-of-pocket with sales taxes.

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Fig. 1

Notes

  1. These data are available from the California Polytechnic and State University at: http://ceenve3.civeng.calpoly.edu/sullivan/sr91/Survey_downloads.html

  2. Without more information on the demographics of individuals traveling to Orange County to purchase sales or services, we can only infer a few, limited things. Orange County residents as a group are among the most affluent people in the US. It is likely that visitors to Orange County are on average less affluent at the mid to higher income levels than Orange County residents. Visitors may also be, on average, more affluent than the mid to low-income residents of Orange County. Thus, if we were to relax the geographic constraints of the cost estimations, it is likely that the tax incidence would be more regressive than our constrained estimates at the group level for the whole body of consumers paying into the county coffers—including those outside of Orange County. However, the burden for individual low-income households within Orange County lessens because of the cross-payments from outsiders. That much is evident because the tax base increases. This story would be different in a jurisdiction with a smaller retail base than Orange County or in a place where the jurisdiction levying the tax is on average less affluent than its visitors. Again, context matters.

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Acknowledgements

Many thanks to Randall Crane, Casey Dawkins, Ted Koebel, Chris Nelson, Kenneth Small, Max Stephenson, Gen Giuliano, Juliet Musso, Jianping Zhou, Martin Wachs, Sandi Rosenbloom, and three anonymous reviewers for their input into this manuscript. Excellent research support came from Eric Howard, John Linford, and Ryan Walker. This research was funded in part by a grant from the UCLA Academic Senate, and the authors are grateful for this support.

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Correspondence to Lisa Schweitzer.

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Schweitzer, L., Taylor, B.D. Just pricing: the distributional effects of congestion pricing and sales taxes. Transportation 35, 797–812 (2008). https://doi.org/10.1007/s11116-008-9165-9

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Keywords

  • Sales taxes
  • Congestion pricing
  • Equity
  • Justice