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Getting Rid of the Gas Tax
Adam Stein, 19 Mar 09

This flew under the radar, but a few weeks ago a federal commission floated the idea of eventually replacing the gas tax with a tax based on the number of miles driven each year. What happened next was odd: progressives, conservatives, and wonks banded together to proclaim a mileage tax to be a stupid idea.

A mileage tax isn't a stupid idea. In fact, it's a necessary one. I'd guess that within ten years, most states will be implementing or at least studying some form of per-mile road fee. But the concept is largely unfamiliar to the public, and drivers tend to raise several common objections whenever the idea is mooted.

The primary objection to a mileage tax is that we already have one: it's called the gas tax, and it's easy to administer, fair, and has the added bonus of rewarding fuel-efficient vehicles and driving behavior. When the Oregon Department of Transportation (ODOT) recently conducted a trial of a mileage tax system (pdf), they were aware of the high bar they had to meet: "From the standpoint of tax policy, the gas tax is close to perfection."

Or at least, it was close to perfection. It has one fatal flaw and a few subsidiary issues. Any discussion of the mileage tax must be grounded in an understanding of the gas tax's growing problems.

First, keep in mind that the gas tax is meant to raise funds for road infrastructure. Any environmental benefits are incidental. And with regard to its primary function, the gas tax is nearing the end of its useful life, because its tax base is steadily and inevitably dwindling. Cars have become more fuel-efficient -- as they must under the nation's CAFE laws -- and these efficiency gains will grow as hybrid electric and fully electric vehicles make up a greater proportion of the national fleet. States across the country today face budgetary shortfalls from this trend. ODOT says, "In about 10 to 15 years the state’s gas tax revenues will enter permanent decline. While this crisis is only a few short years off, the pain of lost revenues has already begun." (Ten years might sound like a long way off, but ODOT's plan for phasing in a mileage tax stretches all the way to 2040.)

Second, the environmental benefits of the gas tax are largely theoretical. The tax is too low to have much effect on either vehicle choice or driving behavior. According to ODOT, "the average passenger vehicle driving 12,000 miles per year only pays $12 in state gas tax per month," a tiny fraction of fuel cost, insurance cost, and vehicle cost. While it's great that a Hummer driver pays more in gas taxes than a Prius driver, a Hummer driver also pays a lot more for gas. In truth, neither driver is sweating the tax very much.

A sharp upward adjustment to the gas tax could address both these issues. Which brings us to the third problem: decades of experience show the near impossibility of raising the gas tax, even to the extent necessary to match inflation. Last year, two of the three leading presidential candidates campaigned on a suspension of the gas tax -- and they weren't even from the same party. Politicians usually take the heat for this situation, but much blame lies with gas-obsessed voters.

Would a mileage tax address these issues? Clearly it addresses the first. The only source of revenue erosion under a mileage tax would be a drop in miles driven, which are far more stable over time than gallons purchased. Note that revenue erosion alone dictates the eventual replacement of the gas tax.

Regarding the second issue, a mileage tax can easily be designed to reward vehicle fuel efficiency in the same manner that a gas tax does. In fact, more exotic mileage taxes can specifically target drivers who bear a disproportionate share of responsibility for greenhouse gas emissions or are most able to seek transportation alternatives -- say, people who drive gas guzzlers in urban centers. Will such a system be any better than a gas tax at encouraging conservation? Probably, and it's unlikely to be any worse.

Finally, will politicians be able to raise a mileage tax to keep revenue in line with expenditures? Uncertain. On the one hand, the level of emotion surrounding the gas tax springs in part from the high volatility of gas prices. Separating the road fee from the fuel bill might lower the temperature of this issue. On the other hand, Americans pretty much hate to pay for anything. At the very least, the lack of revenue erosion with a mileage tax will reduce the need for constant price hikes. Again, it seems unlikely that the new system could be worse than the old.

So the scorecard thus far is that a mileage tax corrects the huge, gaping flaw in the gas tax, and performs at least as well on two secondary issues. In a future post, I'll explore some other common objections to mileage taxes.

Adam Stein is a co-founder of TerraPass. He writes on issues related to carbon, climate change, policy, and conservation.

Image credit: Flickr/billjacobus1

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Comments

I thought the idea being floated was a "mile tax", not a "mileage tax". That is, you would pay a certain amount for each mile you drove. A Hummer driven 1000 miles would cost the same tax as a Prius driven 1000 miles.

I fail to see how such a tax would be an improvement over what we have now.


Posted by: Michelle on 19 Mar 09

This is an interesting argument for a mileage tax over a gas tax, but it seems to overlook one concern that I think many opponents of a mileage tax may share: the intrusiveness of assessing the tax. In order to implement a mileage tax some government agency would have to periodically evaluate the numbers of miles a vehicle had traveled. This might require the owner to make a trip to a government facility. In comparison the gas tax is nearly invisible.

This objection becomes even more alarming when you look at the actual mileage tax proposal, it says:

"Establish VMT technology standards and require original equipment vehicle manufacturers to install standardized technology by a date certain that will accommodate the desired 2020 comprehensive implementation. Any technology deployed should be designed to accommodate the full range of potential charge systems in anticipation of the potential for state, local, and private toll roads to piggyback on the national system. These state, local, or private systems should be required to be interoperable with the national VMT standard. *** Ideally such systems also should incorporate in-vehicle or after-market Global Positioning System (GPS) devices. ***"

In short, this proposal is suggesting we should all have to have government accessible GPS tracking devices on all our cars. I'd prefer jacking up the gas tax, thanks.


Posted by: John L on 19 Mar 09

Yeah, the 'remotely-accessible GPS to administer this' part is going to kill this idea for a lot of people - it does for me, frankly. I do not think governments are competent at handling this sort of information. It will get abused, it will get leaked, it will get sold off to corporate interests. (or, more likely, it will get contracted out to some corporation to run in the first place, then we'll get all the abuses and even less accountability...)

I sound like some sort of libertarian freak writing the above, but even they're correct sometimes.


Posted by: Wirelizard on 19 Mar 09

> Regarding the second issue, a mileage tax can easily be designed to reward vehicle fuel efficiency in the same manner that a gas tax does

Of course, this takes the cost out of the realm of physics and in to the realm of politicking. By placing the rules in the hands of 'designers', such systems can be gamed, while a tax based on consumption cannot.

I don't know why it would be politically easier to raise a mileage tax than the gas tax. So I'd say both taxes shares this defect.

I violently agree with the commenter's point about not providing the government with more data to abuse.

All in all this article convinces me that our big problem is the lack of political will to impose a meaningful gas tax. Replacing that with a more complicated, more easily gamed system probably won't increase political willpower.


Posted by: pmorrisonfl on 19 Mar 09

Pmorrisonfl hits the nail on the head:

"All in all this article convinces me that our big problem is the lack of political will to impose a meaningful gas tax. Replacing that with a more complicated, more easily gamed system probably won't increase political willpower."

I think the argument can also be applied to GHG policy as follows:

Our big problem is the lack of political will to impose a meaningful carbon tax. Replacing that with a more complicated, more easily gamed cap & trade system probably won't increase political willpower.


Posted by: Tom Fiddaman on 20 Mar 09

Mileage or VMT-based systems offer the potential to vary fees by time and location. That is, they offer a practical way to implement a version of congestion pricing. There are political and technical concerns of course -- privacy issues being the most obvious one. One way to overcome some of these issues is to begin with certain classes of vehicles, rather than all cars, trucks and buses at once.


Posted by: Richard Mudge on 20 Mar 09

Yeah, have to agree with the other posts: there's no way you'll find more political will for this privacy-invading tax than the nearly-invisible and difficult-to-game gas tax. And legislative designers can just as easily design forward-looking adjustments into the gas tax. For instance, you could say the gas tax rises 5% per year, every year (that's not 5% additional tax every year--that would be silly--I mean 5% of the tax's value, rising exponentially like compound interest, staying slightly ahead of inflation. Maybe even set the rise to inflation + 2% or something.)


Posted by: jeremy Faludi on 22 Mar 09

The whole argument hinges on the one assumption that mile tax is immune to revenue erosion - the fatal flaw of the gas tax. But then the author extends the mile tax to "reward conservation" - well, but to the extend that this works, you'll again get revenue erosion, or not?

Further it remains totally unclear why the author thinks the political will for imposing a new tax universally seen as a "stupid idea" is stronger than that for a raise in the gas tax.

But in the end I believe we'll have both, a gas tax (or CO2 tax) specifically targeting the negative externality "pollution" (for which fuel burned is a good measure) and a road tax (an extended toll system) for everything else (street degradation, noise, ..).


Posted by: Valentin on 22 Mar 09

Hi folks,

Thanks for your comments. I tend to agree that a mileage tax is not going to magically solve the issue of political will. That said, I also think that people tend to discount just how important the revenue erosion problem is. Gas taxes need to rise and rise and rise just to keep up. Several decades of experience show that such increases simply aren't possible.

Miles driven, on the other hand, do steadily rise over time. The recent jump in gas prices have caused the first slight dip ever in the steady upward march of miles driven. But as vehicles become more efficient, the cost per mile of driving will continue to drop, and miles driven should (though it pains me to say it) continue their upward climb.

So, though a mileage tax may not be much easier to fiddle with than a gas tax, such fiddling will be far less necessary. Plus, you get all the cool congestion pricing functionality for free.


Posted by: Adam Stein on 22 Mar 09

"Miles driven, on the other hand, do steadily rise over time. The recent jump in gas prices have caused the first slight dip ever in the steady upward march of miles driven."

Adam, you're playing with the numbers. Miles driven per capita do not steadily rise over time. Gross miles driven does, but so does total gasoline consumption (though not gas consumption per capita, thankfully).

http://captaincapitalism.blogspot.com/2008/05/miles-driven-per-year-by-americans.html

There are holes on top of holes in these arguments. A mileage tax is not some magical pixie dust that is going to make the problem of decreasing revenue go away.


Posted by: Mark on 3 Apr 09

That's exactly the graph I had in mind when I wrote about the steady upward march in miles driven (I never said anything about miles per capita). I'm not sure which numbers I'm supposedly playing with, but that graph looks to me like an almost linear increase in miles driven over a course of decades.

This isn't a very complicated argument. If cars are getting steadily more fuel-efficient, than gasoline consumption by necessity erodes more quickly than miles driven (which I suspect aren't really going to be eroding at all). It's sort of a mathematical truism.

Where are these holes again?


Posted by: Adam Stein on 3 Apr 09

They're over here. See comments.

http://www.worldchanging.com/archives/009690.html


Posted by: Rick Earvin on 7 Apr 09

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