Finance President

A Mileage Tax in Question

When cars are no longer powered by gas, who will pay for roads and transit?

Yesterday, an AP reporter asked White House press secretary Robert Gibbs if the Obama Administration was considering imposing a mileage tax to pay for transportation, claiming that Transportation Secretary Ray LaHood had come out in favor of the revenue generator in an interview. Mr. Gibbs immediately shot down the reporter, saying that the administration would not be advocating such a plan. But with high-mileage cars increasingly common, will the government find the funds to build roads and operate transit systems?

Currently, the vast majority of revenue for highway construction and transit subsidies comes from the gas tax, which is 18.4¢ per gallon. Many states add to that amount, increasing the tax to a maximum of 62.8¢ per gallon in California, though the nationwide average is 47¢ per gallon. (Diesel fees are slightly higher.) This system is based on two concepts: one, that people who drive should pay for the roads that they use; and two, that people who drive more efficient cars should be rewarded for their vehicle choice.

Gas tax revenues go directly to the Federal Highway Trust Fund, which was created in 1956 to fund the Interstate Highway System and which has three accounts: roads, transit (2.85¢/gallon), and underground gas storage (0.1¢/gallon). Last year, the fund ran out of money, forcing the U.S. Congress to allocate $8 billion to ensure adequate funding for projects already under construction; the fund is likely to run out of money once again this year, even though allocations from the fund are supposed to be based on the pay-as-you-go principle. Though the majority of money from the account goes to roads projects, the 1982 Surface Transportation Assistance Act added the small but important mass transit account.

The problem with the gas tax system is threefold: for one, it hasn’t changed since August 1993, meaning that its relative value has declined over time as inflation has taken its toll; second, people started driving less beginning last year; and third, as people drive more and more fuel efficient cars – and eventually electric ones – the fund will lose a large percentage of its revenue since people will not be buying as much gas as before. Mr. Gibbs’ quick response, then, doesn’t answer the United States’ long-term transportation-funding dilemma.

The mileage tax, which would require people to pay based on the numbers of miles driven, rather than based on the number of gallons consumed, should be given rightful consideration, as Secretary LaHood had indicated. It would be more feasible to implement than tolling devices all over the country and it would be fairer than using general funds from federal income tax revenues to pay for transportation, which not everyone uses equally.

At the moment, it may seem completely politically infeasible because it would intrude into the privacy of America’s drivers – it would require drivers to install a GPS devise to monitor their every movements. But, theoretically, a system could be created that blocks information about the driver’s location and simply records their total movement.

Without a new revenue source, our transportation dollars are likely to decline steadily over the next few years, and Mr. Gibbs’ glib rejection of the mileage tax seems less thought out than we should expect from an administration that claims to be concerned about the steadily increasing deficit. After all, if we don’t pay for transportation through a defined revenue source, and we don’t raise general taxes, we’re going to be paying for our roads by taking on debt.

13 replies on “A Mileage Tax in Question”

VMT is fine but the gps component is stupid. It is a stupid technical geek factor that has no purpose, it expensive to run and has real privacy concerns. Instead pull the tax out based on mileage numbers from the odometer inspected yearly.

Odometers are already important for the sale of the car and there are laws protecting them from tampering. Obviously a gas tax still needs to be in the mix and there needs to be classes of vehicles in the VMT so that the 200 lb EV doesn’t get charged the same as the 4 ton SUV.

A flat VMT tax is regressive and penalizes those who drive efficient cars.

Um, the electricity station?

Or you could, you know, charge tolls.

Or simply have residents pay in their property tax, since they are the ones who use the roads most often and also benefit most from the commerce it brings.

Duncan has a fine point. If you are able to assure that a GPS reading is correct then why not an odometer reading? It’s far simpler technology.

Since it is highway tax it should be based on two variables, the weight of the vehicle and the mileage. An annual inspection would catch the mileage off the odometer, the weight comes of the manufacturer’s specifications. For cash flow, a web based estimated monthly payment could be an option.

The odometer is the most straightforward solution; however, it’s politically infeasible on a national level. Although a number of states (VA and MD, for example) have annual or biannual inspections, many states (e.g., CO) do not.

For those states that already require a regular vehicle inspection, this isn’t a big deal, and the inspection process can be amended to include mileage reporting.

However, the institution of a brand new, federally-mandated vehicle inspection regime, solely for the purposes of assessing taxes, would make for a massive populist revolt, especially in the intermountain west. No politician with a skin worthy of self-preservation would seriously consider this behind closed doors, let alone in public.

The problems with the gas tax are not, of course, reasons to replace the gas tax, they are reasons to supplement the gas tax with other revenue sources.

Congestion pricing on FHTF funded roads would be a better supplement for the gas tax than a VMT tax, since it will can charge all vehicles, whether running on gasoline or not, and even more importantly since it can avoid the “need” for much new highway construction, which is driven by congestion caused by giving away a scarce resource for free.

Another supplementary tax could be a three tier vehicle excise that drip feeds into the FHTF accounts … twice the standard rate for vehicles below current fleet fuel efficiency, the standard excise on vehicles at the current fleet fuel efficiency, and excise free for vehicles at twice the current fleet fuel efficiency.

A third supplementary tax could be a per year registration tax, assessed on vehicle weight. Down the track, that could be converted to a mileage and weight tax schedule … but there’s no pressing need to solve the problem of financing rural, suburban and interstate road construction when nobody is using gasoline … we can cross that bridge in the happy day when we come to it.

Driving has three main externalities: pollution and GHG emissions, wear and tear on the road, congestion.

The first is proportional to gas consumption, so it should be accounted for by a gas tax. The current tax is too low to fully offset it, so it should be increased, paying into the general fund and allowing the federal government to reduce income taxes and increase social spending.

The second is proportional to the fourth power of vehicle weight, and is best handled via some tax on trucking. Cars are trivial here: the difference between a 20-ton truck’s wear on the road and a 20.0025-ton one’s is the same as that between a 3-ton SUV’s and a 1-ton sedan’s.

The third is not a national problem; it’s localized to a few congested arteries, and is best solved by a congestion tax. Singapore, Stockholm, and London have all implemented it in their CBDs, reducing congestion in the process.

I agree with your post that the Obama Administration should look further into adopting the VMT system in order to generate a steady source of revenue for the United States transportation system. Even with President Obama’s near $40 billion dollars allocated to the rehabilitation of current transportation infrastructure and to new developments of energy-efficient transit systems, without a steady source of income the current public transportation systems across the US will continue to drop service routes and layoff employees according to insert title here.

I personally feel that the VMT system, which has successfully been implemented in Oregon, is a perfect solution for our transportation funding problems. Not only will the VMT system create a reliable source of income, but the VMT system is also a policy that will promote the use of public transit. With the VMT system enacted, drivers will be more conscious about the amount of miles that they drive, for they will be forced to pay more accordingly. Americans will therefore start becoming more conscious about driving their cars to destinations that they can easily get to by more sustainable means of transportation.

While one draw back of the VMT system may be that there will be no incentives to drive fuel-efficient cars, the government can pay out refunds to those who own fuel-efficient cars in order to promote further sustainability. If the government does not offer these refunds to fuel-efficient car owners, than they will pay the same amount of taxes that a person driving a Hummer the same distance in a year will owe.

of course gps-based mileage recording is overkill and silly. the odomerter is perfectly fine, and can be included in several ways. drivers can tell gas attendants their mileage so the tax can be included in the gas sale (mileage is often already recorded by gas staton equipment for drivers fleet vehicles), drivers can wait for an inspection assessment (if applicable in their state), they can choose to stae their miles driven in their annual federal tax filings, or they can wait until the transfer of title as part of the tax assessment there (total miles driver durin gownership). this allows for flexibility for drivers to choose if they want to pay incrementally (at every fill-up or charge-up) or in one lump sum at the end of their ownership. simple!

Matthew, you’re not providing any argument why VMT is superior to gas consumption as a base for taxation. On the contrary, you offer one argument why it’s inferior: to encourage high fuel economy the government will have to create a new bureaucracy to reimburse people who drive fuel-efficient cars.

“The Gas Tax” is a shortsighted name for it. It needs to be “The Fuel Tax.” Whatever you have to put in your buggy to make it go is what needs to be taxed. Perhaps some preferential treatment is in order, as in less for CNG than gasoline, but that’s a policy decision. The real point is, you gotta pay for when you wanna go.

I haven’t seen anything to convince me that raising the gas tax isn’t a much more feasible and appropriate way to address the relevant externalities that come from driving.

Strongly agree with Alon Levy here. Drivers who choose fuel-efficient cars DESERVE to have lower taxes for their smart choice. A VMT tax would completely invalidate the tax benefits achieved by purchasing fuel-efficient cars.

Also – fuel-efficient cars tend to be lighter, on average, than gas-guzzlers. This means they place less wear and tear on the road. Under a VMT tax, the driver of a Hummer would pay the same tax amount as the driver of a Prius over the same distance. The Hummer driver still has the disincentive, since he uses more fuel and pays more because of it; but his tax burden is not any higher.

I also agree that trucks need to be taxed more heavily for the damage they cause to roads. Perhaps a separate, and higher, tax on diesel fuel would accomplish this, rather than a whole new tax? It would annoy drivers of some European imports, but most consumers would probably get behind such a tax if the rationale was explained.

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