We Make Money the Old Fashioned Way -- Through Massive Public Subsidies

During and after the Obama proposal for lots more government spending on long-distance rail lines no one will ride, there was a lot of discussion about how European railroads make money with high speed lines.  This sounded like BS to me, from my experience.  Years ago I consulted briefly with the SNCF, the state railroad of France.  Just as one example, we found they had something like 100,000 freight cars and 125,000 freight car mechanics.  I tongue-in-cheek suggested they could assign each guy his own car to ride with full time and fix if necessary and still cut staff by 20%.

Anyway, it turns out the profitability claim is BS.  The Antiplanner links to this study by the Amtrak inspector general.   Here is the key chart, with the green the "reported" profits.  But it turns out they book subsidies as revenue.  The subsidies (including indirect subsidies like taking railroad pensions into the national system and off the railroad's books) are in red.

railroad-lossesPostscript: I have always been amazed that greens get all misty-eyed at European rail.  Sure, its cool to ride a fast train, but the cost of having an extensive passenger rail system is that most of Europe's freight pounds along highways, rather than via rail.  In the US, the mix is opposite, with few passengers on trains but much more of our freight moving by rail.  I would have thought that preferentially moving freight over rail rather than passengers was a much greener approach.


  1. Fred Z:

    "would have thought that preferentially moving freight over rail rather than passengers was a much greener approach."

    Hmmm, you may be right. Let's test it. We'll set up a system where people get green credits, represented by paper markers, to exchange for goods, services and transportation and 'green' things like clean air, water and so on. We'll have a giant exchange for transferring the credits, storing them, lending them and so on. It's very important to get accurate information so we'll allow no interference or distortions in the exchange mechanism.

    Geez, I don't know what to call the whole thing, but lets call the green credits 'greenbacks' and maybe call the exchange a marker credit exchange or 'MarkIt'.

    I think we would get perfect statistical summary information on what actual people actually wanted, green-wise, as opposed to what politicos and bureaucrats want, or what people say they want, but for which they won't actually give up markers.

    Whadaya think?

  2. LoneSnark:

    That's insane! What about all those people with insufficient 'greenbacks' to buy a train ticket? They would be forced to drive everywhere they go and suffer the indignity!

  3. joshv:

    When comparing to automobile transportation, you need to include the massive public subsidy of public roads and highways if you want to be fair.

  4. DrTorch:

    And what "subsidy" for roads would that be? The gasoline tax that users know about, and already pay. The one that's factored into all the equations already b/c it's directly tied to the price of gas? That one?

  5. K:

    joshv: I am not sure if you mean in the US.

    But in the US 80%-90% of all highway and public road expense is offset by vehicle fuel taxes and vehicle licensing.

    And the rest, almost all for local roads, is taken from local real estate taxes. That makes sense because some towns and localities choose to maintain far better roads than others and should pay for what they get.

    A great deal of confusion about funding is caused by the fact that no single agency both collects the taxes and disburses the monies for the building and maintenance.

    The revenue comes into cities, counties, states, independent public funds, and the federal government. Then it is spent, allocated and transferred by other agencies according to political decisions, statutes, and regulations.

    The allocations and transfers make it appear that highways and roads get large subsidies; in reality what appear to be subsidies are mostly transfers.

    Comprehensive material is hard to collect in this field. And I have no intention of arguing the matter in detail. That is simply not a good use of my time.

    However, I will respectively read your reply and if you have a good source that supports the massive subsidy claim I would like to see it.

  6. joshv:

    80-90% Really? http://www.brookings.edu/~/media/Files/rc/reports/2003/04transportation_wachs/wachstransportation.pdf (Figure 1) - in 2001 - about 35% of road funding came from gas taxes.

    You might counter that another 15% comes from vehicle taxes and fees - but so what? Those aren't user fees - they are taxes - taxes used to subsidize roads.

    So based on these numbers we see that the US road system was subsidized to the tune of approximately $80 Billion in 2001. I imagine we could bulk that up a bit if were started throwing in underfunded pension liabilities for state transportation workers.

  7. K:

    joshv: Thanks, I will look that report over. I don't see why vehicle taxes should be called road subsidies and should not be called user fees.

    Anyway, here is one of the references I was relying upon:

    http://www.tfhrc.gov/pubrds/may98/finance.htm **

    But the numbers are for 1998. Later data seems scarce. Somewhere towards the bottom this says 82%. That is consistent with memory and some other web pages I could find it I wanted to work that hard.

    ** The links from the above address are actually more informative.

  8. NormD:

    joshv: Assuming your report is correct, the direct payment by car and truck users for roads is: gas tax + vehicles taxes and fees + tolls + bond proceeds (after all these bonds are passed by voters to support roads) + investment income (from the taxes collected but not immediately spent I assume) + other taxes and fees (I assume these are included because they are earmarked for roads - I would guess a large chunk is sales tax on gas that should be earmarked for roads.)


    The subsidy is 15.3% (general fund) and 4.8% (property taxes) or 20.1% or 27 billion NOT 80 billion.

    I cannot speak for other states but here in California Gas Taxes are spent on "transportation". A good chunk of the tax is thrown down the mass transit rat hole.

  9. Bob Smith:

    If you're going to complain that not enough road funding comes from gas taxes, you must first ascertain how much gas tax revenue is diverted away from roads. That number is in the billions a year. There are state gas taxes, like the new MN tax where "not more than half" (as I recall) of the tax could be spent on roads. As to sales taxes, in addition to sales taxes on roads, don't forget the billions of dollars a year in sales taxes on auto parts, service, and new car sales, all of which goes to the general fund and only a little of which ends up in road funding.

  10. Danny:

    I really liked your last comment, and it was refreshing to hear from someone else because nobody I talk to seems to understand this point.

    In academic terms, we can find an "environmental" version of Pareto efficiency with the rail situation in the United States. We have limited rights-of-way in developed US cities: Supply of rail lines through cities is fixed in the short run and the medium run. Supply of rail lines through cities is not fixed in the long run, but it is quite expensive to expand.

    Given that supply is fixed and demand is growing faster than supply can keep up, we must force ourselves to choose how to use the supply that we have.

    Thus, from an environmental standpoint, we basically have two choices: Do we move freight on our rail lines, or do we move people. Whatever we can't move on rail must be moved by other means...most likely highways. So which transportation has the better comparative advantage on rails from an environmental standpoint? I, like you, suspect that it is much more environmentally efficient to move heavy freight by rail than it is to move people by rails and pushing freight to highways.

    Of course, we could be wrong, but I doubt that. I wish someone would do the studies themselves just to have the proof. And if the proof is positive, it also becomes another proof that the price system is much more "green" than technocratic statism.

  11. K:

    joshv: Ok, I read the 2001 Brookings report and I don't think it supports your contentions.

    The 35% is for gas tax but that not the only fees and taxes imposed on those who operate vehicles. To simply declare that all revenues but gas taxes don't count is untenable.

    The report did point out that a steadily increasing share of revenues comes from borrowing which is to be repaid by general sales taxes. That is a bad trend and eight years later in 2009 we have a little more experience with the consequences of borrowing to the max.

    Yes, some states do get road money via the feds from other states. Alaska is right at the top. But shifting money between states is not a subsidy, it is a transfer.

    And at the bottom of page 10 you will see Brookings refer to "cross subsidies." Again, they are referring to moving money from one group to another. That, in the context, is a transfer not a subsidy.

  12. tomw:

    Danny: If you are considering rail transport of people or freight as an either/or situation, I would suggest that you consider that there are 24 hours in a day. The 'people' load is generally concentrated into early morning hours and late afternoon hours, say 7-9AM and 5-7PM. That leaves 20 hours out of 24, or 83% available for freight tranport.
    I realize my calculation is an exaggeration, but I don't think it is a true one or the other type choice.
    The railroads do not want passenger traffic interfering with their infinitely more profitable freight traffic. Check the fare from the SF bay area to Atlanta. Discover how many days it takes and what planned stopovers are embedded. Consider how many unplanned stopovers due to circumstances will be encountered. No one would take a train unless they had a fear of flight. More expensive, slower and considerably more uncomfortable, passenger service is run at a loss compared the the airlines "considerable" (not) profit history.

  13. MJ:


    The MN gas tax increase goes into the Highway User Tax Distribution Fund, which, by law, must be spent on roads. There was a constitutional amendment a couple of years ago that diverted the remaining amount of proceeds (46%) from vehicle sales taxes from the general fund to transportation purposes. The amendment stipulated that no less than 40% of this amount could be spent on public transit (in principle, it could be as high as 100%). There were additional provisions in the bill that included the gas tax increase, such as an optional 1/4 sales tax for public transit, which 5 of the 7 metro counties adopted (without referendum, I might add), and also the option for counties to impose "wheelage" charges, essentially a per-vehicle tax on vehicle ownership.

    This is in addition to the roughly 20% of federal fuel tax proceeds that support transit spending programs.