Toll Roads or Sales Taxes?

Most forms of transportation finance are regressive forms of taxation that burden the poor more than the rich, says a new study by USC and UCLA researchers.
By Anna Cearley
The study found that the express lanes are disproportionately used by middle and upper-middle income households.

Popular wisdom may suggest that toll roads are unfair to the poor, but a new study shows these pay-as-you go transportation options may actually be fairer to all income levels than paying for road improvements through sales taxes.

“Just pricing: the distributional effects of congestion pricing and sales taxes” examines the high-occupancy toll lanes on State Route 91 in Orange County, known as the 91 Express Lanes. The study has been released for online publication by the journal Transportation, and it comes at a time when public officials in Los Angeles and other cities are considering congestion tolls and sales tax increases for road projects.

In the study, lead author Lisa Schweitzer, assistant professor at the USC School of Policy, Planning, and Development, and Brian D. Taylor, professor and chair of urban planning at UCLA, compared how two distinct transportation-funding mechanisms a toll road and a tax measure affect lower-income residents in Orange County.

Because many voters and elected officials oppose proposals for “congestion tolls” on equity grounds, road projects are usually funded by more politically acceptable sales taxes. The researchers found this reasoning is flawed.

“Asking drivers to pay for road use ignites debates over fairness, but the debate often fails to address the larger question of how funding for transportation projects is actually being distributed throughout the community,” Schweitzer said. “Freeways are a premium transport service, and they should be priced accordingly. The study shows that if we are prudent, we can do that while being sensitive to the circumstances of low-income drivers.”

The 91 Express Lanes is a 10-mile stretch of roadway with four lanes in the center of the freeway reserved for registered users with transponders. Subscribers can then pay a toll to enter the lanes and bypass stop-and-go traffic in the adjacent “free” lanes. The tolls are set to keep traffic in the reserved lanes free-flowing and range from $1.25 to $10 depending on direction and time of day.

The study found that the express lanes are disproportionately used by middle and upper-middle income households. Using this as a starting point, the researchers asked hypothetically how people of different income levels would be affected if the four express lanes instead had been financed with sales tax revenues.

To answer this question, the researchers looked at Orange County’s local option transportation sales tax, known as Measure M, which is levied on everyone who purchases taxable goods and services in Orange County. Measure M generated about $240 million annually during the period of the study, which considered expenditures both by Orange County residents and out-of-town visitors.

If Measure M funds had been used to finance the SR 91 Express Lanes, the poor and wealthy would pay more. The very poorest Orange County residents would pay about $3 million more each year than they actually did under the current toll system. Thus a sales tax arrangement for the project would take money from the lowest income groups in order to save money for higher-income drivers.

Under the current SR 91 Expressway scenario, those who are paying the most to use the lanes are typically middle and upper-middle class households with the freedom to decide whether the extra price is worth the savings in time.

“While regular users can pay dearly for the right to bypass 9 miles of bumper-to-bumper traffic about $700 a year for heavy users and $300 a year for moderate users all such payments are voluntary, because traveling in the congested free lanes is always an option,” said Taylor, co-author of the study.

The study noted that most forms of transportation finance fuel taxes, sales taxes and tolls are regressive forms of taxation in that they burden the poor more than the rich.

“Are tolls regressive? According to this and many previous analyses, yes. But for transport policy, whether tolls are regressive fails to fully address the justice and fairness issues that arise in financing road use,” according to the study. “Using sales taxes to fund roadways creates substantial savings to drivers by shifting some of the costs of driving from drivers to consumers at large, and in the process disproportionately favors the more affluent at the expense of the impoverished.”

The researchers suggested that if policy makers are worried about low-income, peak-period commuters paying tolls, one way to address this would be to provide discounted “lifeline” pricing based on income levels, as is done by utility companies for qualifying customers, or provide travel credits to lower-income commuters.

Another strategy is to use toll revenues to enhance transit services along the corridor so that people have an alternative to driving on the freeway.

While economists have long argued for “congestion tolls” on efficiency grounds, this groundbreaking new study suggests that such tolls may, surprisingly, increase equity in comparison to raising sales taxes to pay for transportation facilities.

An online version of the report is available at