Study: Railroad Industry Keeps U.S. Economy on Track

Published August 3, 2016

A new study examining the extent of the railroad industry’s impact on the overall strength of the nation’s economy shows railroad commerce generates more than $32.8 billion in tax revenue for local and state governments, in addition to employing millions of Americans every year.

The research, conducted by Towson University economist Daraius Irani, attributes nearly $274 billion in overall economic activity to the railroad industry.

Full Steam Ahead

Irani, an economics professor and chief economist at Townson University’s Regional Economic Studies Institute, says large railroad companies, or “class-one railroads,” such as CSX and Union Pacific Railroad, significantly contribute to overall economic prosperity in the United States.

“Class-one railroads’ total economic impact for 2014 was about 1.4 million jobs supported across the economy, which is about 1.1 percent of all jobs in the United States,” Irani told Budget & Tax News. “Its contribution to [gross domestic product] was about $273 billion, or 1.6 percent of total U.S. GDP in 2014. In terms of wages, there were approximately $88 billion in wages, which represents about 1.3 percent of wages in the United States. In terms of fiscal impacts in 2014, the railroads and their economic activity generated $11 billion in state and local taxes and $20 billion in federal taxes.”

Ripple Effects

Irani says the railroad industry has other positive effects on the American economy as well.

“This is only part of the spending and revenues for one single year,” Irani said. “It doesn’t factor in, for example, that railroads allow the transportation of goods such as steel to be able to go to the next level. This is just basically the effect of railroads by themselves and not how they contribute to other industries’ ability to produce goods and services.”

Holding Back Industrial Power

Marc Scribner, a senior fellow with the Competitive Enterprise Institute, says big government is hitting the brakes on railroads’ economic power.

Back in 2008, Congress mandated that the railroads—all of them, including commuter railroads, AMTRAK, and the freight—install positive train control technology as a safety measure,” Scribner said. “This is very expensive. It cost the freight railroads billions of dollars, even though, as the Federal Railroad Administration admitted in an impact analysis in 2009, the costs greatly outweighed the benefits. The railroads complied and spent all this money installing this technology.”

‘Deregulation Works’

Despite those impediments, Scribner says the U.S. railroads’ success story provides an important lesson for lawmakers.

“The moral of the story is that deregulation works,” Scribner said. “If you’re in a heavily regulated, moribund industry, there’s really only one thing you can do, and that is to get the government off [your] back and let markets work.”

Elizabeth BeShears ([email protected]) writes from Trussville, Alabama.