Conservative case for spending more

By John Hood | May 10, 2013

RALEIGH — Fiscal conservatism comes naturally to me. After all, my middle name is McDonald.

But I am also persuaded by empirical evidence that fiscal conservatism is the best policy for promoting economic growth. North Carolina governments can improve our state’s competitiveness by limiting spending, finding ways to deliver core services more efficiently, and using the resulting fiscal capacity to reduce the state’s marginal tax rates on work, savings, and investment.

That’s not to say there aren’t particular programs that wouldn’t benefit from a bigger budget within a context of lower overall spending. Let me give you an example.

North Carolina remains a fast-growing state with escalating demands for passenger and freight transportation. Systems funded with direct user fees, such as airports and freight railroads, are responding to the demand with new capacity. Mass-transit fetishists are trying to respond with new tax-funded rail schemes, but that’s not where the demand is. The vast majority of North Carolinians want new or less-congested routes for commuting or shopping by car. They also want their roads kept in better repair, thus reducing the wear and tear on their cars as well as the risk of accidents.

Automotive transportation is overwhelmingly a private system funded by users. Some 80 percent of the cost of the system is contained in cars and trucks that are purchased, fueled, insured, and maintained by private households and businesses. The remaining 20 percent consists of roads and bridges that are mostly paid for with dedicated taxes on motor vehicles and fuel – which are indirect, rough approximations of user fees.

Both Left and Right are prone to misunderstanding and misstating these facts when budget time arrives. Liberals claim that spending tax money on roads is not qualitatively different from spending tax money on transit, the only transportation mode that really is heavily subsidized by people who don’t use it. And some North Carolina conservatives, citing our state’s high gas tax, claim that the highway system must have plenty of money already.

The real reason North Carolina’s gas tax is relatively high is that our property taxes are relatively low. In most states, localities play a major role in highway finance. That’s not how North Carolina does it. Our counties don’t build or maintain roads, for example. If you factor in all taxes and fees destined for roads, North Carolina ranks below the national average, not above it.

Moreover, rising construction costs and greater fuel efficiency have eroded the relationship between highway demand and highway revenue collected. Here’s the bottom line: Over the past 15 years, the number of miles traveled on North Carolina’s roads has grown 35 percent. Total spending on the road network has grown, too, but not as much in real terms. Adjusted for inflation and miles traveled, North Carolina spent 14 percent less on roads in 2010 than we did in 1995.

Some solutions to this problem are better than others. Raising the gas tax would anger motorists and boost revenue at gas stations just across our borders. Raising general sales taxes would break the link between highway use and revenue altogether, taking us in precisely the opposite direction from the way we should go.

There are three solutions that fiscal conservatives ought to embrace. First, spend existing gas and car taxes more wisely by setting better statewide priorities, as Gov. Pat McCrory has recently proposed. Second, use dedicated tolls to fund new high-demand capacity along major commuting corridors, such as the new southern loop in Wake County.

Finally, end all remaining transfers of highway-related revenues to the state’s General Fund, which amount to slightly more than $200 million a year. Most of this amount consists of gas-tax funding for the Highway Patrol, which is in effect a state police force and ought to be integrated with other law-enforcement programs within the General Fund, where revenue is rising at current tax rates.

We can have better roads, and thus a healthier economy in the long run, without raising taxes.

Hood is president of the John Locke Foundation, which has just published First In Freedom: Transforming Ideas into Consequences for North Carolina. It is available at JohnLockeStore.com.

 

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