Transportation Funding Crisis — And A New Tax?
Currently the U.S. federal government spends $78 million a year to keep the national highway system in working order, but only receives $34 million in revenue from the gasoline tax. This disparity is only going to increase if we leave our current system in place, as vehicular efficiency continues to rise and EVs start satisfying an increasing portion of our transportation. While many of us here at CleanTechnica would probably argue more efficient transportation and a lowered dependency on oil is a good thing, I think most would also agree we need to maintain tax revenue in order to keep our transportation sector in working order, and hopefully even improve it.
To this end, congress is currently considering passing legislation to tax car mileage. For the moment, let us completely overlook the difficulty in enforcing this tax, along with its incredibly invasive nature, and look at tax systems as a whole.
From a societal perspective, the best tax systems are used as incentives to discourage behavior that has impacts which society has deemed as “negative.” Whether people realize it or not, this was the foundation of one of the most well-known taxes in existence: the sales tax. The sales tax is a tax on consumption, and while the behavior of buying goods is not necessarily negative, those who consume more of society’s resources place more of a demand on society and, therefore, pay more taxes to help keep society running. This is a very successful tax and has been adopted in fifty states and is the same principle behind the excise tax levied on gasoline and diesel fuel.
So, what went wrong with the excise tax on gasoline and diesel? Inflation. The law for the gas tax stipulates a tax of between 26 and 81 cents per gallon depending on local governments, and currently does not increase with inflation. With the American pastime of driving, and our incredible distaste for paying taxes, legislation to increase the gas tax became untouchable. No lawmakers dared to increase such a noticeable tax! While the federal government did correct some of the disparity in 1993, and some states have attempted to update their local gas tax, none have come close to keeping the revenue in line with the cost of transportation maintenance.
Which brings us to this new tax on mileage. While this tax may seem logical at first, at its core, this tax has a fundamental flaw. While it does tax the “negative” behavior of driving, which consumes resources and produces pollutants, it does so ambiguously! This concept does not distinguish between the person who drove 13,000 miles in their Land Rover LR4 last year and consumed over 850 gallons of fuel and the Chevy Volt owner who also drove 13,000 miles last year and only filled up his 9.3 gallon tank 4 times. Because of this, the proposed law ends up targeting the behavior itself and not the negative externalities associated with it.
So, what is this article doing on CleanTechnica? As that last example illustrated, using this mileage tax would remove much of the economic incentive to driving a fuel-efficient vehicle, making it even more difficult for hybrids and EVs to gain market penetration. On the flip side, however, we could write tax policies that collect from those using most of our natural resources, policies that account for the externalities produced by consuming oil-based fuels, and policies that encourage a more sustainable lifestyle through encouraging efficiency and alternative fuel vehicles.
But, then again, policies like these might promote a more efficient, self-sustainable America. Who would want that?
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Billions, not millions.
A million just doesn’t buy what it used to.
How about a mileage tax that’s proportional to vehicle weight – the main determinant of road wear – combined with an excise tax on imported fuel and oil by the barrel? We increase the cost of fossil fuels across the economy, which makes alternatives compare better AND we encourage lighter vehicles which tend to be more efficient and safer for those around them.
Problem is that truckers will organize against any such weight tax, since road wear is proportional to the 4th power of axle weight, which means that loaded semi trucks would pay 30,000 times the tax of a passenger car, which would in turn pay 50,000 times the tax of a bicycle.
But Rex the truck should pay 30Kx that of a passenger car. It is doing most of the damage. It is a free external we give trucking companys today to let them beat out trains and barges. Yes there will be ripple effects in the enconmy. IMHO best would be to ramp the gas tax to 3x-4x over 2 years and then have the mileage tax ramp up over several years to give time for adjustment. You have to remember that while we may spent twice what we take in, but there is a big backlog of needed repairs because we are not spending enough. And that doesn’t even consider that a good portion should be reserved to build mass transit in this country.
I agree that the trucks, and by extension all the business and consumer activity supported by truck shipping, should be paying all of that external cost. I’m just saying that the Teamsters are an organized political force, unlike the entire business and consumer population downstream that pays the trucking costs. So any proposal for taxing trucks that much more heavily will be politically difficult.
While that is quite an interesting idea – how do you adjust for the fact that some drivers travel more than others? Do two different semi-truck drivers pay the same tax when 1 drives 15k miles a year and the other drives 100k miles per year?
Could we accomplish this by levying a tax on the tires? They are all rated to a specific weight and last a designated number of miles on average, so tax the tires using Tax = ((Weight)^4)*Miles*Cofactor where weight is the axle weight that set of tires can support, miles are the average miles the tires will last and cofactor is a term that turns it into a comparable number of dollars that are the same for every vehicle. Combine that with the excise tax on fuel.
Thoughts?
I was thinking of a VMT, only with the rate set proportional to axle weight. A tire tax is interesting, too, though.
But a VMT is very hard, if not impossible, to enforce without encroaching on citizen’s right to privacy and most methods can be easily falsified… a tire tax on the other hand is almost impossible avoid and easy to enforce if the tax is applied at the factory they are made or the port they are imported at.
Plus it is a tax on consumption – people who accelerate fast, break hard, and regularly carry heavy loads wear down their tires faster, and of these behaviors put more wear on the road than drivers who do not exhibit these behaviors.
I don’t think you have a right to privacy while you drive. Toll roads and weigh stations with transponders already track drivers quite accurately, as do cell phone traces. I already give my location data away to Google to use for their traffic congestion service, along with just about every other smartphone user on the planet.
Privacy and VMT is a funny argument, and I don’t think VMT is derailed entirely by that.
Still, the tire tax is a very interesting take. I haven’t heard that proposed anywhere else. Maybe it will come up for discussion now that you’re out here bringing it up. 🙂
Many states already have an annual vehicle inspection. I would imagine vehicle mileage is recorded.
For those who don’t annual self-reporting could be used with verification occurring at time of sales or when a traffic ticket was written. Or have people cruse through a check station once a year.
Miles driven per year is not a privacy issue. I think this whole worry got started when someone suggested using GPS to track car driving which could have been a privacy worry.
Well, the reason the GPS thing was suggested is because it’s very easy to fake the Odometer. Currently no one bothers because there’s no reason – it doesn’t matter how much someone drives.
But if you start charging them a significant sum of money, people are going to figure out how to “roll back” their Odometer. How do we get around that without invading privacy?
I thought Zach might know it because of his previous comments about this, but I’ll chime in with something I don’t think anyone here is aware of. A VMT has been discussed for years (decades?) by planners — common topic at the Transportation Research Board conference in DC (biggest transportation planning conference). One of the issues with a VMT tax is that you have to know where the person is driving in order to allocate the money to the right jurisdiction. This is why some sophisticated system of tracking where people drive is important… and that of course fringes on the privacy of citizens. I wouldn’t give a crap, personally, but you know that a lot of people would. All kinds of privacy issues with knowing exactly where people are driving.
I’ve been hopeful for years that they’d find a way to implement a VMT, find a way to get beyond this issue. But I haven’t seen anything yet… But, really, it seems like some tech wizard or group should be able to come up with something — perhaps just some way of showing when someone crosses a jurisdictional boundary. (But without tracking everywhere they go.)
Granted, I haven’t followed this topic closely in the past 5-6 years.
If you wanted to do that, why wouldn’t you just mount Toll road cameras at every entrance and exit to major roads or between jurisdictions, or even just a pressure sensor… You can then count the number of cars that use each stretch of road fairly accurately and use that to determine where the money went.
Well, in that case you’re setting up a ton of toll road cameras, and still missing smaller roads. And you still have to identify specific cars (not sure if such cameras are really adequate for that) in order to price each individual right.
If I understand you correctly you are requiring that we factor in vehicular weight as well? That’s why we have to identify specific cars?
And yes, Toll Cameras are the same as License Plate readers, and as such they can find exactly what car drove through their jurisdiction. While this solution does require an extensive amount of additional infrastructure, It is no more than forcing everyone to use a GPS, it is harder for people to tinker with and it is less “obviously” invasive. Granted, it does end up allowing the end user to calculate where every car went fairly well, but it would require more work than simply reading the GPS history and it would be significantly less accurate as to which neighborhood/house you went to and simply record which jurisdictions you crossed.
Practically and Economically the Tire Tax is the easiest and most efficient way to enforce a mileage tax, but this would be technically feasible.
Very interesting idea. Have never seen that. But I’m guessing that’s a hard one because it would be easy to game.
How would it be easy to game a tax on tires? If you tax them at the factory of production then it’s almost impossible to slip by the tax, and all of those parameters are in the tire specifications so you don’t need to wait to see your end user…
Hmm, I didn’t catch that you were recommending taxing at the factory. Seems more practical now.
Completely agree.
The mistake you make in this article Zach is that petroleum use global warming isn’t the relevant externality. Road damage is. And road damage occurs whether you use alternative energy sources or not. Maybe electrics are even worse for roads, given the weight of battery packs.
Just because global warming is your #1 issue doesn’t mean it should be used as the basis for all tax policy.
You want to add a carbon tax to the gasoline taxes and mandate those monies be used for solar, wind, geothermal and hydro projects depending on the region where they are collected, that’s fine (well, it’s a regressive tax, but whatever) but it is a seperate issue.
Couldn’t agree more. The direct and indirect externalities of road use are virtually independent of fuel efficiency. Electric vehicles run people down, congest the roads, and damage road surfaces as much as ICE vehicles. Though promoting EV use is a laudable exercise for other reasons, let’s not conflate the different issues.
Ok, fair enough – it’s all a matter of where your priorities lie. And in general I agree with you – I would much rather see policies that directly apply to related issues and do not conflate other, tangential topics, but unfortunately that’s not the world we currently live in. I would argue to truly capture all the externalities of driving you would have to include:
A carbon/air pollution tax – This would have to be leveraged on the fuel to be practical for various reasons. We can discuss if you disagree?
An Oil tax – All of the free externalities Oil incorporates (Army to provide world stability, tax deductions through Master Limited Partnerships, etc) need to be accounted for.
A Ton*Mile tax – As wear to the road is proportional to the 4th power of the vehicle weight, we need a way to factor this damage in. This tax would most easily be applied to tires as their wear is proportional to road wear for a given load. (Something like Tax = ((Weight)^4)*Miles*Cofactor)
The list goes on, but I believe that would cover the vast majority of it. While the article above is far from exhaustive, I believe it does raise attention to the current proposed solution and some flaws with it.
I am ok with all of those ideas, but I think people on this forum tend to overstate the defense budget as a direct oil subsidy. If we woke up tomorrow and had 100% renewable electricity generation and 100% EV use we would NOT spend the rest of the day dismantling the military/industrial complex and rely on our armed citizenry to defend the nation from international agressor states, real or imagined.
If the above happened, the total decrease in defense spending would probably be less than the sequester will impose when fully implemented. Granted that is still a large number.
Absolutely agree – A significant portion of the defense budget goes into maintaining a standing army, keeping equipment in working order and funding intense R&D (Much of this technology ends up in civilian applications as well) so anyone using the entire defense budget when calculating that cost is sorely mistaken.
But, that being said, there is a substantial cost to keeping those lanes open and a substantial tax benefit for oil companies in Master Limited Partnerships. Obviously a lot of research and math to do if anything ever becomes of this, but at this point I believe acknowledging the fact that it is substantial is enough.
One more tax, tax on mileage, lots of taxes even for me it becomes very difficult to calculate all taxes, I am pretty sure that many of us faces same problem, I think for my kind of people its very necessary to consult an adviser related to this field.
and many services. where do you think your roads come from? and police? and firefighters? and schools? and parks? and of course much more.