How Tax Policy Favors Trucks over Rail

Source: Congressional Budget Office. Instead of publishing a range of costs, I include here an average cost figure for the top four categories. For CO2 emissions, I include CBO's middle-rage estimate.

Source: Congressional Budget Office. Instead of publishing a range of costs, I include here an average cost figure for the top four categories. For CO2 emissions, I include CBO’s middle-range estimate.

The “external” costs of transporting goods differ widely by truck and rail, but freight-transport prices do not reflect those costs, argues a new report by the Congressional Budget Office (CBO). In very rough numbers, I calculate from the CBO numbers, the differential amounts to $.03 per ton-mile transported.

That differential is not reflected in the taxes paid by trucking and rail companies. The result is that a far greater share of products are shipped by truck than by rail. Writes David Austin, author of “Pricing Freight Transport to Account for External Costs“:

Adding unpriced external costs to the rates charged by each mode of transport—via a weight-distance tax plus an increase in the tax on diesel fuel—would have caused a 3.6 percent shift of ton-miles from truck to rail and a 0.8 percent reduction in the total amount of tonnage transported. Such a policy would have eliminated 3.2 million highway truck trips per year and saved about 670 million gallons of fuel annually (including the increase in fuel used for rail freight). On net, accounting for the effect of fuel savings on revenue from the fuel tax, such a policy would also have generated about $68 billion per year in new tax revenue and reduced external costs by $2.3 billion.

I don’t know the odds of such a weight-distance tax being implemented on the federal level. I wonder if Virginia could implement it on the state level. One consideration not included here: the cost of administering such a tax.


There are currently no comments highlighted.

7 responses to “How Tax Policy Favors Trucks over Rail

  1. ………..xxxxxxxxxxxxx……………xxxxxxxxxxxxx……….


    I am a train kind of guy but I don’t think the safety stats reflect the big jumps in petroleum related train wrecks.

    • What’s the percentage increase in petroleum related train wrecks? And for further context, what are the absolute values the amount of wrecks started and where it jumped to?

  3. The taxpayer welfare for overweight trucks adds to the problem.

    Fees have been raised, but a subsidy remains.

  4. I’m all for raising gas/diesel taxes by this order of magnitude to even the externalities burden, proceeds to be spent on transportation infrastructure of all kinds. Not likely to happen anytime soon, but keep on spreading the word.

  5. In terms of raising money for transportation, an extremely high tax should be placed on short-term gains on trades of commodities when the seller does not take physical possession of at least 80% of the commodities purchased. Many economists believe that the price of commodities can be manipulated and is often detached from supply and demand.

  6. I’m not convinced that raising taxes would cause both rail and trucks to change their current logistics supply networks which typically put regional distribution centers at locations where there is rail and access to interstate.

    especially since rail has pulled back from spurs and concentrates on mainlines.

    if you don’t know or don’t have an analysis about how how the tax would have to be verses the probably effects that would take place – then you’re pretty much dealing with policy options for which you don’t know the impact and has the proverbial unintended consequences outcomes.

    stores right now – build re-orders through their scanners at their checkouts.

    the re-order is being put together at the distribution center almost in real time with the explicit strategy of replacing stock sold on a 24/7 basis – rather than keep large inventory on site.

    I’m skeptical that Rail, even if there were spurs, does not lend itself to this kind of operation.

    and what probably would happen, certainly in the short term is – folks like Lowes would just incorporate the higher taxes into the price of their goods – just like they would if the market drove up fuel prices.

    I’m not opposed to higher taxes – per se – I just think govt usually is way behind the private sector when it comes to competition and efficiency to deal with costs…

Leave a Reply