Privatizing toll roads in the U.S. may result in significant diversions
of truck traffic from privatized toll roads to "free" roads, and may
result in more crashes and increased costs associated with use of other
roads, according to a new study.

It’s interesting how congested, dangerous, public roads are framed as a problem of safe, fast, toll roads!  The problem, however, is easily solved.  Price all the roads!  Unrealistic?  Foolish?  Not at all, especially not for large trucks which are the focus of the above study.  The key is to tie the price to the truck not to the road.  With today’s GPS technology trucks can be outfitted with GPS devices that can price all roads according to time, congestion, quality and a variety of other factors.  In fact, just such a system is working in Germany right now.

In other congestion news the DOT is finally allowing airports to charge landing fees based on congestion.  This is good news for travelers who can thank the economically-astute, Harley riding, no-nonsense Secretary of Transportation, Mary Peters.

By the way, Transportation Secretary Peters wrote the foreword to Street Smart: Competition, Entrepeneurship and the Future of Roads, a very good book on road pricing and privatization edited by Gabriel Roth and published by the Independent Institute (where I am the director of research.)

As the economy slows many people from Larry Summers to Martin Feldstein are calling for a fiscal stimulus.  I am not convinced.  Spending and tax decisions can
rarely boost an economy.

First, the money for any new spending or tax cuts has got to come from somewhere, right?  Thus there is usually substantial crowding out of any stimulus.

Second, by the time the new spending or tax cut
gets through the political process the economy has moved on and the
stimulus is no longer relevant except by accident.

Third, there just
isn’t that much discretionary spending to play with and even a large
increase in spending, say tens of billions, is too small to make much of
a difference in a 13 trillion dollar economy.

Fourth, in their desperation to "do
something" politicians will often do something foolish.  If a spending
increase or tax cut isn’t worthwhile on its own merits then it’s highly
unlikely to be worthwhile once we add in the benefits of "stimulus."  Thus, it’s one thing to argue for extending unemployment benefits as a matter of welfare it’s quite another to think that an increase in unemployment benefits will so increase spending as to reduce unemployment!  (The implicit view of Larry Summers.)

Economists may call for "temporary," "conditional," and "targeted" stimulus but they won’t be the ones designing the plan.  Spending
increases and tax cuts are policies with long term
consequences that we need to think about carefully. 

Thus, I do not favor a fiscal "stimulus"
package.

Despite large swings in the market for presidential nominees over the past few days, on the Democratic side Clinton has dropped and Obama risen by almost 15 points and on the Republican side McCain has surged to take the lead (!), there has been very little movement in the winner take all market which is predicting a Democrat win.  Thus, the markets seem to be saying that the candidate doesn’t matter.  In this election it’s party and the Republicans are losing.

Winner Take All Market from IEM (click to expand).

Imagine an aviation system in which planes fly
two-thirds empty, fares are as low as $46 and the government pays up to
93% of the cost of a flight….that system exists in the USA – and quietly is expanding…

That is from USA Today talking about the millions spent on the "Essential Air Service" program.  Do you think that the program protects small rural communities?  Nah, try small community airlines. 

…as Congress has escalated subsidies through the years, the program has
increasingly paid for flights between major airports and places that
are neither rural nor isolated.  [For example,] in October, the DOT agreed to one of the
program’s largest subsidies ever – $2 million a year to Atlantic
Southeast Airlines. That pays 60% of ASA’s cost to fly two round-trips
a day between Macon, Ga., and Atlanta’s Hartsfield-Jackson
International Airport, 81 miles away. The airline projects that passengers will pay an
average of $78 for a one-way ticket – and that flights, typically on
planes with fewer than 70 seats, will run 83% empty.

Need I tell you that the program was supposed to be temporary?  Here’s some more data from USA Today.

Community	Destination	Annual subsidy	Subsidy per passenger	Average pass. per flight
El Dorado, Ark.	Dallas/Fort Worth	$923,456	$250	3.1
Devils Lake, N.D.	Minneapolis	$1,329,858	$203	5.7
Worland, Wyo.	Denver	$797,844	$187	4.2
Bradford, Pa.	Pittsburgh	$1,217,414	$174	3.6
Jamestown, N.Y.	Pittsburgh	$1,217,414	$135	4.7
Salina, Kan.	Kansas City	$487,004	$131	2.1

Sources: Department of Transportation, USA TODAY analysis of DOT and airline data

When I come to my office, I take my sweater off.  When I go home, I put my sweater back on.

A common response to my post showing that The Rich Pay for the Federal Government was that the rich also get more benefits from the federal government.  Let’s go to the numbers.  Here’s a chart showing federal spending categories for 2007.  (Click to expand.)


Social Security, the biggest category, doesn’t benefit the rich at all because net Social Security payments are heavily biased against the rich.   According to Eugene Steuerle and Adam Carasso of the liberal Urban Institute a two earner couple earning $230,000 a year (thus putting them at the mean household income for the top 20%) and scheduled to retire in 2030 will pay $227,886 more in social security taxes than they receive in benefits (in present value).

Defense is the next biggest category.  To me a lot of "defense" spending doesn’t benefit anyone but let’s be generous and say that the rich benefit from military spending in proportion to their income share which for the top 20% means 55%.  Thus $301b.

Medicare benefits the rich less than the poor since they are healthier (plus they must pay higher premiums) but let’s say that Medicare benefits the rich in proportion to their population.  If we say the top 20% are rich and assume that this is the same in the 65 and older category then 20% of Medicare goes to the rich.  $78.8b.

Medicaid doesn’t benefit the rich.  The rich do use unemployment insurance but at far lower rates than the poor.  Does welfare benefit the rich?  Not directly but maybe from the warm glow.  I don’t think the benefits of charity are what most people mean when they say that the rich benefit from the federal government but who knows.  Let’s again be generous and say that the warm glow goes just to the rich and that it is worth 20% of the benefit to the poor.  $73.4b

Everything else includes the example that people always seem to mention first, roads!  Alas, the entire transportation budget is just $77 billion, not much there even if a lot of it goes to the rich.  By my judgment a lot of "everything else" has low value but again let’s be generous and say that the rich benefit from everything else in proportion to their income share (.55).  $233b.

Excluding the national debt gives us a total of $687 billion out of $2597 billion going to the rich or 26%.  If we assume that the division of the national debt is the same as for the government as a whole (since this is just past expenditures) the percentage is still 26%.

Thus in a generous accounting the rich get 26% of the benefits of federal spending and pay 68.7% of the costs.  In percentage terms the rich get about 37 cents on the dollar.

Alternatively stated about 63 cents of every dollar in taxes paid by the rich is transferred down.  Given that the median voter is a taxeater not a taxpayer we should not be too surprised, although this is a smaller number than I would have guessed before I did the calculation.  From an efficiency point of view we should be happy that the rich don’t get too much – transferring resources creates a lot of waste but transferring resources from the rich to the rich is especially wasteful. 

The basic point is clear; In the United States, one can argue for taxing the rich on the ability to pay principle but not on the benefit principle.

Addendum: Thanks to Ted Frank for catching a math slip-up on my part which I fixed raising the total to 26%.