> SOUTHERN INDIANA —
There's a lot to debate and decide about bridges for the River City.
Should it be the massive "Ohio Rivers Bridges Project", a single East-End bridge, or no additional bridges for the foreseeable future?
Beyond that, if we're going to build a bridge or two, how should we pay for it? To what extent should it be financed by Kentucky and Indiana — as opposed to taxpayers elsewhere in the country? And to the extent that it's financed by our two states, should it be financed through general revenues, by an increase in a particular tax, or with a “user fee” — i.e., tolls?
In terms of both equity (“fairness”) and efficiency, user fees are attractive since the burden falls on those who use it. It is generally considered “fair” that those who use something should be the ones to pay for it. And a user fee lines up incentives nicely. People will use it as they value it. In contrast, a price of zero encourages “too much” use.
Economists also like user fees because the cost of government activity is far more transparent. When taxation is more subtle, people are often fooled into imagining a free lunch from the government.
But user fees can also have a disproportionate impact on those with lower-incomes. Of course, a user fee is "proportionate" per trip; everyone pays the same toll. But it will be "regressive" if it imposes a larger percentage burden on those with lower incomes.
In practice, a user fee on bridges is probably "U-shaped"— with the largest impact on the middle class and smaller (percentage) burdens on the poor and the wealthy. Many of the poor don't cross the river that often — and the wealthy don't cross it much more often than those in the middle class.
The impact on those in various income classes is an important consideration. But again, a user fee should be viewed in light of the alternative taxes. Are tolls more painful than a sales tax, a higher tax on income, or higher taxes on property? Proponents of a bridge or two should be clear about both the benefits of building and the costs of funding. And opponents of one funding mechanism should consider whether the alternatives are better.
All that said, the most surprising part of the debate has been the points of contention raised by some self-styled "liberals".
For example, they have complained about the potentially regressive impact of tolls. But I don't hear them complain very often about federal payroll taxes on income — 15.3% of every dollar earned by the working poor (more than $3,000 from someone supporting a family at the poverty line).
I also don't remember much applause for former Governor Ernie Fletcher who worked with the legislature to change the state income tax in Kentucky. The Commonwealth had been the worst in the nation in this category, but they no longer tax the earnings of the working poor.
At least in Indiana, some liberals are complaining about the impact of such a tax on the business community. This is unusual. But I’m excited to see them recognize the negative impact of taxation on microeconomic incentives and macroeconomic growth—at least in this one case.
I'm also glad to see these people promoting "free trade" between Indiana and Kentucky. In many other contexts, they work to restrict trade with those in other countries. Likewise, this is a bit surprising, since many of them promote "buy local" campaigns — and a toll would certainly encourage people to stay in their own states to make purchases.
Finally, many liberals would like us to reduce driving, traffic, and air pollution—to help the environment. Tolls would do that—and would promote carpooling, mass transit, and bike-riding too. Why don’t they consider tolls to be a wonderful idea?
There are legitimate reasons to oppose multiple bridges and tolling as a funding mechanism. But it’d be nice to see more consistency from those who oppose these ideas.
D. Eric Schansberg is professor of Economics at Indiana University Southeast and an adjunct fellow with the Indiana Policy Review Foundation.
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