Transportation Policy in the Age of Disruption

Waymo, the autonomous driving spin-off of Google, is fast at work turning driverless ride-hailing from a science fiction concept into a realistic transportation option for the public. In San Francisco, it has already captured as much as 27 percent of the rideshare market.¹ In addition to the Bay Area, Waymo offers service in parts of the Los Angeles and Phoenix areas; its driverless cars can also be hailed through Uber in Austin and Atlanta. Amid this success and momentum, the firm is now looking to expand its operations throughout the United States, with Miami, Dallas, Houston, San Antonio, and Orlando next on the list.²

Not to be outdone, Tesla is now promising what it calls “full self-driving” to its customers, though its vehicles still require a driver to be ready to take control; it has begun offering driverless “Robotaxi” service in Austin and San Francisco, with more cities to come. The company is nearly at the production stage for its Cybercab, a car designed explicitly for robotaxi service.

While one segment of the U.S. auto industry is focused on going all in on driverless cars, another is looking at the threat of competition from Chinese EVs. Ford CEO Jim Farley has been driving electric vehicles from China, such as the Xiaomi SU7. Xiaomi is a Chinese conglomerate known especially for its mobile phones. He said of the SU7, “It’s fantastic. I don’t want to give it up.” He considers these low-cost, high-quality electric vehicles from China as the real challenge to Ford, and a genuinely existential one at that. He said, “We are in a global competition with China. And if we lose this, we do not have a future at Ford.”³

The popular YouTube tech reviewer Marques Brownlee was also impressed with the Xiaomi SU7. After driving it for several weeks, he said, “This feels like a preview of what Apple might have done if they’d made an Apple car.” Brownlee touted its high-quality build and materials, software, quiet ride, and more. He summed it up by saying, “Are we cooked? Not yet, clearly. This car is not available here in the US. But you can see how we could be soon. . . . There’s basically no question in my mind that if a car like this was available in the US for $42,000, that it would crush.”⁴

Asking the Right Questions

In past decades, American surface transportation policy centered around questions like how much to spend, how much to distribute between roads and transit, and how much each state should get in return for its federal gas tax contribution. Today, surface transportation policy is taking place against the backdrop of multiple technology revolutions in autonomous vehicles and electric vehicles, with China potentially poised to dominate the latter—and possibly the former as well.

To make matters worse, various elements of American transportation policy are increasingly unfit for purpose. The impact of electric vehicles and greater fuel efficiency are already being felt fiscally. Revenues from gas taxes, traditionally the main source of transportation funding, are increasingly insufficient to cover funding needs at both the federal and state levels. The federal surface transportation program has begun relying on general funds and other transfers to supplement motor fuel taxes. This is in part because the federal gas tax of 18.3 cents per gallon and diesel fuel tax of 24.3 cents per gallon has not been increased since 1993, despite substantial inflation and increasing fuel efficiency and electric vehicle use. But if electrical vehicles, from China or elsewhere, grow their market share substantially, gas tax increases would be rendered moot, even if the political will might be gathered for it.

Transportation investment needs are also becoming more heterogeneous across the nation, due to differing demographic trends, development patterns, and state policy choices. No longer are we building an interstate highway system that all states and major cities want to participate in and would benefit from. Instead, different regions have different needs.

Growth in the United States today is highly uneven. Many sunbelt cities and urban regions are booming. They require new and expanded roads and expressways to keep up with their population and economic growth. But other parts of the country, particularly in the Midwest and Northeast, are stagnant in population, or they see only pockets of growth. These places do not need nearly as many new highways. In fact, in some regions such as Cleveland or Buffalo, more exurban highways only subsidize people and firms to relocate within the region, as there is little to no overall growth under the status quo.

Only a limited number of cities have major legacy rail transit and commuter rail systems: New York City, Boston, Chicago, Philadelphia, San Francisco, and Washington, D.C., while a handful of other cities like Los Angeles, Baltimore, and Seattle have important local transit systems. But in most places, public transit is either nonexistent or plays a small role as a social service. Transit in the United States also suffers from worst-in-class features, such as extremely high rail construction costs. Unlike interstate highways, whose very name speaks to their role in handling long-distance freight and passenger movements, public transit is by its very nature local or regional. Thus, it is difficult to craft national policy that effectively addresses issues in transit.

In addition to demographic and infrastructural variability, there are also large variations in the policy preferences of various states. More liberal states might be opposed to new sprawl and highway construction on environmental grounds. Conservative ones might be more skeptical of public transit and prefer new highway construction. Thus, there is no national consensus surrounding what good transportation policy even looks like at the federal level. This lack of consensus is one reason the gas tax has remained frozen for over thirty years.

Lastly, many of our roads that are in significant need of repair are local streets that are not part of the federal-aid highway system. That’s over 85 percent of local roadways. Complaints about how the streets of some city resemble a “lunar landscape” almost always refer to these kinds of local roads. This problem will not be addressed through the current federal funding system no matter how much money is provided to it.

In light of these challenges, significant changes to the U.S. transportation policy framework should be considered. These include the devolution of most federal responsibilities to the states, a migration from fuel taxes to tolls (or other structures) as a financing mechanism, addressing local roadway funding, converging with the best international practices in public transit, and ensuring that the United States is the winner in electric vehicles and transportation autonomy.

The Case for Devolution

Devolution is a curtailment or elimination of the federal government’s role in surface transportation, with more responsibility handed over, or devolved, to the states. It’s a longstanding pillar of the American Right, existing in various forms throughout the years.

My proposal envisions a small role for the federal government in the pure maintenance of the interstate highway system and federally owned roads, along with its existing federal highway safety and data collection programs. All other items would become the responsibility of state and local governments.

Proponents of devolution have historically pursued reduced federal spending and reduced federal influence over state policy to go along with it. Currently, federal influence extends to everything from “prevailing wage” rules that essentially mandate union pay rates to mandatory seat belt laws to various environmental rules. So, it is clear what conservatives stand to gain should these prerogatives be given over to the states. Additionally, a portion of federal fuel taxes are allocated to public transit projects, something many conservatives also dislike.

Those on the liberal side of the spectrum might be expected to oppose devolution, as the federal program advances many of their priorities on a nationwide basis. But a case for devolution can be made from the left as well, as the current arrangement locks the country into a system that overwhelmingly prioritizes private automobiles. Today, for example, roughly 80 percent of gas taxes are allocated to highways and only 20 percent to the transit projects the Left might prefer. As I explore below, federal government requirements raise the cost of building transit projects.

The United States as it exists today is ill-suited to a single national approach to transportation, particularly since many of the features of a rational nationwide system (e.g., spending more money in regions with larger needs like the Sunbelt) are very unpopular. Understandably, members of Congress expect their state to receive at least as much back in funding as it generates in gas taxes. Complaints by net donor states were a staple of federal transportation debates until the growing reliance on general fund transfers made it moot. But unequal allocations of funds between regions and states would still remain politically unpopular. Quite simply, devolution could allow each state to determine how much money to spend on transportation, how to raise that money, and where to spend it. Freeing states from onerous federal mandates that hobble transit projects is a bonus.

New Funding Systems

In a new devolved system, or even without it, states should start migrating away from fuel taxes as a source of revenue. While the transition to electric vehicles will take longer than many thought, and the Trump administration has rolled back fuel efficiency standards, structural trends toward more efficient and electric cars undermine fuel taxes as a basis for transportation finance.

There are various potential alternative systems. One is a vehicle mileage tax in which drivers would pay a fee per mile driven in a state. Various states have experimented with a system like this. One of them is Oregon, which has the most advanced program, known as OReGO. It is a voluntary enrollment program in which drivers pay a per mile fee (2.3 cents per mile in 2026) for miles driven in the state. People enrolled receive a nonrefundable state tax credit for motor fuel taxes paid. Owners of electric or high fuel efficiency vehicles receive a reduced registration fee, while miles driven out of state are not taxed.⁵

Mileage taxes have the advantage of charging more directly for roadway usage in an era of vastly differing fuel consumption profiles in vehicles. But they are unfamiliar to the public, who may have concerns about, for example, being tracked by the government, even with privacy protections built into the process. Still, some states, particularly those with a high share of electric vehicles, may end up preferring a mileage tax approach as a good way to make all vehicles pay their share of all miles driven in a state.

Another approach is tolling, particularly of interstate highways. Traditionally, only new expressways could be tolled, while existing free expressways could not be converted into toll roads. But Section 129 of Title 23 of the United States Code allows states to add tolls to improved interstate bridges.⁶ Indiana and Kentucky used this authority to toll the I-65 crossing of the Ohio River in Louisville.

Because there is no language restricting this to only “major” bridges, this authority effectively allows existing free interstate highways to be tolled. Rhode Island used this approach to implement truck tolling on I-95. Their program was found by the federal courts to possess unconstitutional elements, as it featured a capping program designed to favor in-state trucks. Nevertheless, the constitutionality of tolling itself was upheld by a federal appeals court, and tolls are slated to resume there in 2026 with the toll caps removed.⁷

Indiana studied the feasibility of tolling its currently free interstate highways in 2017, finding that it had the legal authority to do so, and that tolling would raise substantial revenues.⁸ Indeed, Indiana is a good candidate for tolling; its state motto, after all, is “the Crossroads of America.” The state’s feasibility study found that “[m]ore than half of heavy truck traffic on Indiana’s highways begins and ends in other states.”⁹ These heavy trucks can pass through the state without ever stopping to refuel. Because so many interstates pass through Indiana, vehicles are effectively unable to avoid driving through the state. Trucks traveling east–west would have to divert all the way south through heavily congested Nashville as an alternative. Indiana also desires to widen its heavily traveled I-65 and I-70 throughout, but it currently lacks the funding to do so.

Tolling would allow this widening to be completed on an accelerated basis. Furthermore, tolling holds an advantage over a simple mileage tax because it easily enables variable pricing. This allows tolling to be used as a congestion management tool. Modern electronic toll collection eliminates the need for toll barriers that impede traffic flow. There is not yet a nationwide toll collection standard, but it appears likely that the various regional networks will increasingly become interoperable. There are already people studying how to do this. As of now, however, tolling is probably only readily applicable on expressways; therefore, it would not solve the problem of usage fees for non-expressway roads in the way a mileage tax would. While a single post-motor fuel financing solution for roads has not yet been identified, states should continue experimenting with these mechanisms for shifting highway and non-expressway road finance onto new mechanisms.

States must also find mechanisms for addressing the gap in local street maintenance. States have different ratios of state to local roads, along with different revenue sharing and tax models for financing road maintenance; thus, the exact mechanisms of local funding and solutions vary. Local governments frequently rely on general fund or property tax revenues for parts of their road funding budgets, and these are often vulnerable to being crowded out by other services deemed more critical (such as public safety). There is also high variability in the level of prosperity and fiscal stability in local jurisdictions within states. Some are prosperous suburbs, others are struggling small industrial cities. Many states will likely need to increase their level of state revenue sharing or intergovernmental grants to localities for roads. Some of this will need to be redistributive, given the nature of inequality among local jurisdictions. Providing additional fiscal options, such as the ability for cities to raise infrastructure taxes via referendum, would also prove beneficial in some areas.

Cities and states should also consider adopting legislation that would decline to accept new subdivision streets into the public inventory. This would require residents of new subdivisions to maintain their own streets, such as through their homeowners’ associations. This is already how gated subdivisions work. Given that these streets are designed to limit through traffic and function for the private benefit of the property owners, this makes sense to do anyway.

Anticipating Autonomous Vehicles

States should also begin planning for autonomous vehicles. Autonomy promises to dramatically improve roadway safety and reduce deaths. To date, Waymo’s existing service has been safe, and the future promises further improvements. States should be setting in place regulatory frameworks that encourage the emergence of autonomy. Simultaneously, states need to be careful about falling prey to self-interested lobbying efforts by these firms. Since companies like Waymo and Tesla have different technical solutions, they may attempt to bake their preferred approach into legislation. With Tesla CEO Elon Musk’s forays into Republican politics and right-wing culture warring, one can expect blue states to pass legislation designed to harm Tesla’s autonomous vehicle efforts. Perhaps they may attempt to prematurely mandate Tesla’s competitor(s) as the “safest” technology. Regardless, states should resist this kind of politics, and promote open competition among autonomous vehicle companies.

While states should possess supportive regulations for autonomy, they should also avoid being pressured into prematurely adopting it. State and local officials should recall the decisions that were made in the early days of the automobile. While the car was, indeed, a beneficial and transformative technology, cities zealously prioritized the interest of automobile companies in ways that produced enduring, negative effects. Most public right of way—too much of it—ended up being given to cars. This mistake should not be repeated with autonomy; cries of “safety” and the desire to appear technologically advanced should not trump all other public policy considerations. As urbanist Greg Lindsay put it, “AVs [autonomous vehicles] are ultimately a political question, not a technological one—how do we want to allocate the most precious public spaces in the world, in the heart of our cities?”¹⁰ It’s not clear what the answer to that question should be at present, but part of winning in autonomy is to get the implementation right.

Autonomous vehicles also introduce significant uncertainty into the future of America’s roadway and land use system. Will the future remain dominated by personally owned vehicles that just happen to drive themselves? Will it migrate instead toward a ride-hailing model like Waymo’s? What happens when it is no longer necessary to park near your destination because your car can drive itself to a remote parking location (or simply circle around on streets until summoned)? Will the ability to work or be otherwise engaged (watching a video, reading a book, etc.) during an autonomous commute lead people to live further from work?

We don’t yet know the answers to all of these questions, just as we did not know how the advent of the automobile would transform the country. In this uncertain world, the old traffic models we use to make twenty-year forecasts may become obsolete. This growth in uncertainty means that transportation planners need to apply higher discount rates to their business cases for building new or expanded highways. These investments are now riskier than they used to be, and decision-makers should take that increased risk into account.

Planning for Public Transit

When it comes to public transit, devolution would deprive projects of the dedicated federal funding it now enjoys. But by shifting away from a federal model in which the vast majority of funds are dedicated to highways, states that wish to can create new models that prioritize public transit over cars. Rather than 20 percent of the federal gas tax, these states would be able to dedicate 100 percent of their own transportation revenues to transit, if they so desire. Given that the majority of cities with extensive transit systems and higher ridership by U.S. standards are in solidly blue states (Illinois, New York, California, etc.), one would expect these states to ensure that those transit systems are well taken care of. If they are serious about public transit as a transportation solution, these cities and states also have to bring their transit systems into line with international best practices.

It’s now well known, for example, that the United States has by far the highest rail construction costs in the world.¹¹ Furthermore, in terms of planning, staffing, technology, and operations, U.S. systems are frequently subpar compared to global standards. It would take a major essay in its own right to detail these deficiencies.¹² Instances of American lagging are found in fully automated subway trains, regional fare integration across different transit agencies, and through-running regional rail (versus commuter lines that terminate at a central city station).

A move to devolution would help transit systems implement global best practices by eliminating onerous federal mandates, especially Buy American. While a Buy American policy might make sense in some contexts, transit isn’t one of them. Because transit is underdeveloped in the United States relative to other countries, the scale and technological experience needed to build, say, rail cars in a cost-competitive manner is generally found overseas. In another example, the ideal type of rail for light rail or rail-embedded streetcar systems is called “girder rail.” The leading manufacturer of this is in Austria, but under Buy American rules, it can’t be used on federally funded projects. Portland had to specifically contract with ArcelorMittal to build a substitute in the United States.¹³ These bespoke, domestic alternatives to higher-volume, off-the-shelf products from foreign suppliers raise costs and introduce delays to projects. American transit operators should be allowed to buy foreign-sourced components and would be allowed to do so in a devolved system.

American transit has also been plagued by a post-Covid spike in crime and disorder, with horrific crimes being sensationally reported in the national media, including a woman set on fire and burned to death on the New York subway.¹⁴ Iryna Zarutska’s senseless murder by a repeat offender on a North Carolina train sparked national outrage last summer. Depolicing measures, such as cash bail elimination, have let violent criminals loose and allowed antisocial behavior to flourish on public transit, ranging from fare evasion to abundant homelessness. Correcting these trends in the American legal and cultural context is challenging, but it must be tackled by state and local leaders nonetheless. Crime rates have fallen significantly from their peak in 2021, but these spectacular crimes continue to occur, particularly on public transit.

Many U.S. transit systems are also reeling from the shift to remote and hybrid work during the Covid pandemic. Large urban systems have seen significant structural declines in their transit ridership during recent years. This has created a looming fiscal crisis for many systems as pandemic–era federal aid runs out, with the most notable exception being the nation’s largest transit system in New York City.¹⁵ Otherwise, these cities and states must update their fiscal architecture for transit to avoid service cuts that could trigger a downward spiral or “doom loop” for these systems. That means greater public subsidy in the short term while these cities work to rebuild their downtown economies, address crime and disorder, and implement international best practices.

Similar considerations apply to high-speed rail. As things stand, high-speed rail is only applicable to limited U.S. routes, such as the Northeast Corridor from Boston through New York to Washington. U.S. rail construction practices and costs make the building of high-speed rail infeasible generally; California’s notorious and costly attempt to build a high-speed rail from Los Angeles to San Francisco is a particularly high-profile illustration of this challenge. The private company Brightline, with public subsidy, is currently attempting to build a line between the Los Angeles area and Las Vegas; the project, however, is already running significantly overbudget as well.¹⁶ Its existing Florida standard speed rail line receives positive customer reviews, but it has underperformed in terms of ridership and finances.¹⁷ Convergence with international cost norms and best practices is necessary to make high-speed rail a reality in America.

The Road Ahead

The past year has also seen a disruption to some of the previously ascendant trends in transportation, especially around electric vehicle adoption. Automakers had announced an aggressive transition toward EVs, with some jurisdictions, such as the European Union, mandating the phase-out of internal combustion engines. Consumer adoption unexpectedly decelerated, however, leading even the EU to begin softening its mandates. More significantly, the Trump administration has declared war on all forms of perceived “green” technology, with attacks on renewable energy projects, including an attempt to cancel offshore wind projects that are already under construction.¹⁸ It is attempting to force coal power plants to remain open even when their owners want to shutter them.¹⁹

Most critically from a transportation perspective, the $7,500 federal subsidy for electric vehicle purchases was cancelled.²⁰ California lost its ability to set its own, stricter emissions rules for cars.²¹ The administration rolled back Biden-era fuel efficiency standards,²² and it eliminated fines for failing to comply with federal fuel economy rules.²³ These changes pose a significant risk to America.

By undermining EV sales in the short term, it will be Chinese, not American companies that benefit from the learning curve in manufacturing (especially considering they already have a cost advantage over U.S. firms). As battery costs plummet and technology improves, as exemplified by the five-minute charging system announced by BYD, Chinese EVs may well end up significantly cheaper and far superior to anything produced in America.²⁴ This would force U.S.-based companies out of the car business, or else require a walled-off, higher-cost, technologically inferior domestic market along the lines of the Brazilian manufacturing model. Indeed, U.S. EV market leader Tesla already seems to be empha­sizing its future humanoid robot and autonomy products more than innovating new car models.²⁵ Ford CEO Farley’s fears about the questionability of his company’s future may not be hyperbole.

In addition to potentially heralding long-term setbacks for the U.S. auto sector, the Trump administration’s policies also reduce the short-term impetus to make changes to the current transportation policy framework along the various lines suggested above. Lower EV growth and more gas-guzzling trucks would reduce pressure to find alternatives to the gas tax and the current federal funding structure, at least for a while. Indeed, decision-makers in Washington seem more interested in looking backward rather than forward, in saving coal, for instance, rather than ensuring U.S. leadership in the next generation of transportation technologies.

A better approach would be to focus on ensuring America wins the future technology battle in EVs and autonomy, while restructuring the transportation finance system to better align with this technological future and our heterogeneous environment for demographics and policy preferences.

This article originally appeared in American Affairs Volume X, Number 1 (Spring 2026): 71–82.

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Notes