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Oregon’s Successful Mileage Tax Experiment
Adam Stein, 1 Apr 09
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Recently I’ve been flogging the concept of a mileage tax, a system of per-mile road usage fees that over time can replace our dysfunctional gasoline tax as a way of funding transportation infrastructure. Although people have raised a lot of interesting objections, I’d like for now to skip ahead and simply describe Oregon’s successful experiment with a mileage tax. A single real-world example can be a lot more illuminating than an entire internet’s worth of abstract debate.

Way back in 2001, Oregon recognized the problem that many state legislatures are now staring down: gas tax revenue is falling inexorably as vehicles become more fuel-efficient, threatening transportation budgets. The state launched a task force that investigated 28 alternative funding mechanisms before selecting a mileage tax as the one that best met a wide range of criteria: fairness, efficacy, ease of implementation, public acceptance, enforceability, privacy protection, etc.

In 2006, the state recruited 299 volunteers for participation in a year-long trial of a prototype system. Because any real-world mileage tax will be phased in over a long period of time, it has to harmonize with the existing gas tax. The Oregon experiment neatly solved this problem with a pay-at-the-pump system:

  • A small GPS receiver in participants’ cars tracked miles driven.
  • When participants went to the gas station to fill up, a wireless scanner at the pump detected the GPS receiver and recorded the car’s current mileage, which was then sent to a central database to determine miles driven since the last payment. No specific location data was transmitted.
  • The payment system at the gas station applied either the standard gas tax (for cars that didn’t have a GPS system) or the mileage tax (for participating cars). The experiment was designed to be revenue neutral, so fees were about the same in either case.

The Oregon Department of Transportation (ODOT) has compiled a 100-page report on the experiment (pdf) that covers a lot of ground, but basically describes the trial as a roaring success. Note several features of this system:

  • Overhead is low. Because the mileage tax piggybacks on the existing gas tax collection system, it’s easy and cheap for the state to administer.
  • Payment is simple. From the driver’s perspective, the mileage tax differs little from the gas tax, other than the fact that their gas station receipts contain interesting information on miles driven.
  • Privacy is protected. The state only gets odometer information, not information about vehicle location.
  • Evasion is difficult. Even if you tamper with the GPS receiver, you’re still going to pay the gas tax.
  • Phased implementation is possible. Oregon doesn’t foresee a complete changeover to mileage taxes happening until 2040. This is a bit too slow for my taste (I really hope gas stations don’t exist in 2040), but the point is that gas taxes and mileage taxes can happily coexist as the vehicle fleet turns over.

Technically, the system worked. Just as importantly, public acceptance was high. 91% of test participants preferred the system to paying gas taxes. Obviously this was a self-selected group of people, but the broader public response was equally telling. Before the experiment began, media portrayals of the system were almost uniformly negative — and inaccurate. By the middle of 2006, media coverage ranged from neutral to positive, and were far more accurate. Citizen comment reflected this broader trend. ODOT concludes, “Effective communication can lead to public acceptance.”

Perhaps most exciting from an environmental perspective are the ancillary benefits that such a system can provide. Halfway through the experiment, ODOT divided participants into two groups (plus a control group). One group paid a flat per-mile fee. The other paid a congestion fee of 10 cents per mile during peak driving times in the Portland metropolitan area. The congestion fee was separately itemized on participants’ fuel receipts.

It turns out that all participants reduced their driving relative to the control group — a somewhat surprising finding, because the mileage tax was designed to be revenue neutral. Anecdotally, many participants reported changing their driving habits in response to the GPS mileage displays in their cars. “One person commented that she began walking to neighborhood places when she realized by looking at the display how short the distance from her home actually was. Other people said they began organizing short trips from home to consolidate to one trip.”

The results among the congestion-fee group were even more dramatic. These participants dropped their peak hour driving by 22% compared to the control. And this group also reduced their total driving by more than the flat-fee group, indicating that they didn’t just shift their driving to other times.

These results are preliminary, but suggestive. And they only scratch the surface of the possibilities opened up by a mileage-based pricing system. As the report notes, the system could provide a powerful tool to “metropolitan planning organizations (MPOs) looking for fair and stable means to fund regional plans, manage growth, contain air pollution and support better land use decisions.”

Oregon currently faces a $10 billion dollar revenue shortfall for transportation financing. Earlier this year, the governor of Oregon called for state-wide implementation of a mileage tax.


this piece originally appeared on TerraPass

photo credit: flickr/NathanaelB, Creative Commons License

related posts: Getting Rid of the Gas Tax

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Comments

I think mileage pricing is a step backward from the gas tax. First, mileage is a worse proxy for road wear than gas tax. Heavier vehicles cause more wear to roads and heavier vehicles get lower mileage. A gas tax seems to be a better proxy for road wear than mileage tax. If people switch to hybrids, they may pay lower gas tax but also cause less wear than an SUV which would seem to be a good thing.

Second, gas tax also discourages negative externalities like particulate pollution and carbon emission, while mileage tax doesn't.

Finally, there are particular problems for implementing this in Oregon. The largest city (Portland) is on the border with Washington. It would seem to be possible to avoid Oregon gas tax entirely by filling up in Vancouver, Washington. You can't do that now because Washington has a higher gas tax than Oregon. This would also exacerbate traffic problems in the I-5 bridge.

On the positive side, congestion-based pricing is somewhat attractive, particularly for high traffic corridors. Maybe a "virtual toll" for people crossing the I-5 bridge rolled into gas tax?



Posted by: Dave C. on 1 Apr 09

Hi Dave,

I think most of the states looking at this issue agree that, ultimately, mileage taxes have to be implemented regionally or nationally to be most effective.

That said, I think it would be quite difficult to cheat the Oregon system in the manner you describe. Note that anytime an Oregon resident goes to an Oregon gas station, they get charged for the full mileage since the last fill-up. So if they start cheating by driving to Washington, they'll only defer the mileage tax until the time that they fill up in Oregon. Not only that, they'll end up paying double tax -- the Washington tax plus the Oregon tax. Plus, it would be pretty easy to detect this kind of cheating (just look for people filling up whose mileage is way out of proportion to their gas purchase) and impose a penalty. So the system really does seem pretty resistant to evasion.

As for the other stuff -- I think a mileage tax is actually a good deal better at dealing with the negative externalities of driving than a gas tax. Particulates are much more of a local phenomenon than CO2 emissions, and this is where the congestion pricing aspects of a mileage tax really shine.


Posted by: Adam Stein on 1 Apr 09

Adam,

Thank you for writing the article, but your arguments are less than convincing to me.

Your comment about filling up out of state of course brings up a good point that you failed to address in your response: What happens when I drive into another state/region without the mileage tax? I'm still charged the tax just for driving because I happen to live in a state that does have it? Which means I'm being double-taxed as you noted?

Also, why is a GPS needed at all? Why not hook into the cars computer which will have milage info? (Well, one reason would be to not record/count milage when out of the mileage tax zone.)

Most of the benefits you point out are not directly related to milage taxation, instead they are directly related to people having more information and feedback about their driving habits. You don't need a GPS reporting your driving habits back to the government (even if only miles driven) to gain those benefits.

I don't think you can (well, should) so lightly dismiss the point that a milage tax does not place the burden where it belongs. I think a tax that encourages more efficient vehicles and alternative forms of transportation would be more effective - I just don't see this doing that.


Posted by: Gene on 1 Apr 09

Gene, I think you've answered your own question. You don't get charged for out of state miles because the GPS system only tallies up in-state miles.

I understand the theory behind gas taxes, and I like that theory very much. If it were up to me, the gas tax would be much higher. But it's not up to me, and I can't help but notice that in the real world gas taxes don't work. That is, they don't encourage fuel efficiency or the purchase of fuel-efficient vehicles, because they are too low in comparison to the price of gas. Further, several decades of experience show that it's politically impossible to raise gas taxes even enough to keep up with inflation. Finally, as vehicles become more and more fuel-efficient, gas taxes become an ever weaker lever to influence driver behavior.

I've been kicking this issue around for a while now. Everyone offers the same theoretical defense of gas taxes. No one seems to want to grapple with the fact that in the real world, gas taxes don't work very well.


Posted by: Adam Stein on 1 Apr 09

I wonder how they will define "revenue neutral"? If the effect of the metering and information feedback on miles driven is that people start to drive fewer miles, then they'll have to keep raising the per-mile tax rate to maintain the funding level. Of course, the idea would be that fewer miles driven means less road repair needed, so less tax needs to be collected. This echos some of the same problems they have with a gas tax (falling revenue). Also, if it's supposed to be "revenue neutral" with current gas tax receipts, which are not currently sufficient to pay for most infrastructure repairs, they risk locking themselves into a funding model which actually doesn't provide enough for maintenance and replacement. All in all, an interesting policy option, but the nooks and crannies of the policy making could have a big effect.


Posted by: Asa on 1 Apr 09

The experiment was designed to be revenue neutral. I don't know what the target revenue will be for a full implementation, but presumably the idea is to fully fund the transportation budget.

Note, though, that revenue neutrality could make perfect sense. The problem with the gas tax is that the base is eroding so rapidly. Miles driven is a very stable figure -- in fact, it has been climbing in an essentially linear fashion for over two decades. It may be topping out now, but I doubt it. As cars become more fuel-efficient, driving just keeps getting cheaper.


Posted by: Adam Stein on 2 Apr 09

"No one seems to want to grapple with the fact that in the real world, gas taxes don't work very well."

Perhaps you refer only to the real America, but gas taxes have done excellent work in Europe and elsewhere, keeping vehicle masses down and reducing unnecessary driving. On top of that most interstate-class roads outside the US are highly priced; if others have been amenable to both and we have not historically accepted either, how do we know that Americans will now accept and only accept the latter?

I'm not opposed to mileage taxing, and am very much in favor of road pricing in general, but I think you're too quick to dismiss the potential to raise American gas taxes to the meaningful level that other countries have achieved. When they set their high gas taxes and we set our low ones, we had oil and they didn't. Now we don't have sufficient oil either, and that reality is slowly sinking into this real America. If you don't want GPS-pricing to be dismissed out of hand, please don't do the same to higher taxes on gasoline burning. Both deserve our support.


Posted by: nathan_h on 2 Apr 09

You should do a piece on pay-at-the-pump insurance as well. It is beneficial both to the insurance companies and to people who use externalities like clean air and cities that are lively and not chopped up by freeways.


Posted by: ph on 2 Apr 09

Nathan --

Very true, I spoke sloppily when I said gas taxes don't work very well. What I meant is that in the U.S., they are too low to have a meaningful impact. I wish they were higher, but I remain deeply pessimistic about the politics around this issue. In fact, I expect gas taxes to drop as a percentage of gasoline prices over time, as the economy rebounds and oil prices shoot back up.

ph -- pay-as-you-drive insurance is another great idea. Maybe for a future post.


Posted by: Adam Stein on 2 Apr 09

Adam, you are in my hall of fame. We have reached a point where I can no longer count the number of people who see the benefits of moving from fuel-taxes to road use charging without taking off my socks. To celebrate, I have decided to start a blogography. Yours will be my first entry. Watch for it at grushhour.com.

“Relying on the gas tax is like relying on cardboard to keep the rain out – the longer you use it the less it works.” — Mary Peters, U.S. Secretary of Transportation, October 2008.


Posted by: berngrush on 2 Apr 09

The reason that gas taxes don't work as well and don't collect enough money is because they are simply too small compared to other countries.
Having a higher gas tax creates a strong incentive to buy more efficient cars.
Eliminating the gas tax and charging per mile creates an incentive to drive fewer miles, without any regard to what kind of vehicle you drive. Compare a large SUV for one person getting under 15 mpg and a Prius with 4 people at 60mpg.
A mileage tax treats the two scenarios exactly the same way. Anyone who thinks they are the same, should definitely support the tax...


Posted by: progressive_dem on 3 Apr 09

progressive_dem --

There's no reason a mileage tax has to treat both scenarios the same. It is trivially easy to vary the tax based on vehicle type. In fact, you could design a mileage tax in a graduated way to provide much more targeted incentives for fuel efficiency than a gas tax can.

That said, I think you're placing too much emphasis on the merits of influencing vehicle choice over driving behavior. There are loads of externalities associated with driving. Gas usage is one of them, and it's the main one that a gas tax addresses. A mileage tax can address a much wider range of issues, from gas usage to congestion to road network planning, and so on.


Posted by: Adam Stein on 3 Apr 09

"A mileage tax can address a much wider range of issues, from gas usage to congestion to road network planning, and so on."

No, no it cannot - at least not with the framework used in the Oregon experiment. A mileage tax has NOTHING -- I repeat, NOTHING -- to do with congestion. Get that through your head. 100 miles driven in the city is taxed the SAME as 100 miles driven in the country under a mileage tax. If you want to limit congestion, implement a congestion tax. If you want to discourage people from driving larger cars or wasting time in traffic in congested areas, just use the existing gas tax - if it's not getting you enough revenue, RAISE IT.

But if you want to waste money on implementation of a new complex tax code, GPS systems for every car, mileage tracking systems for every gas station, and defeat the point of the gas tax, which is discouraging consumption of gas with larger (non-hybrid, non-electric) vehicles, well then -- by all means, implement a mileage tax. Screw those early adopters of electric cars, right? It's not as though electric cars have any value to society.

Ugh. This whole frame of thought with the mileage tax makes me sick, and it's even worse that the precise group of people who should oppose it are its most vehement supporters outside the government who stands to raise more tax revenue.


Posted by: Mark on 3 Apr 09

When you're through being sick, you may want to check out the results of the Oregon test, which did not in fact treat 100 miles in the city as the same as 100 miles in the country. Rather, it imposed a 10-cent per mile charge on driving during rush hour in the Portland metropolitan area. 10 cents per mile is a lot, relatively speaking. Average gas taxes in the U.S. are around two cents per mile.

Though the Oregon experiment is admittedly crude, it seemed to work. Participants dropped their driving during peak times in the Portland area by 22%. Better yet, part of those miles were simply eliminated, not just shifted to another time.

These sorts of results are repeated all over the place (Stockholm is a great example). Mileage taxes appear to do a better job of influencing driver behavior than gas taxes do.


Posted by: Adam Stein on 3 Apr 09

I looked over the criteria for the various collection schemes. You notice that none of the criteria make any mention of fuel efficiency. For me, this kills the entire proposal.

The gas tax is simpler, more difficult to circumvent, and punishes heavier, less fuel-efficient vehicles. If congestion charges are a good thing, let's implement them separately. The idea that an Excursion and a plug-in hybrid should pay the same tax for a hundred mile drive is one I find confounding.

Revenues fall as the vehicles become more efficient? It seems so much simpler to keep raising the tax until the revenue is back up to where it should be. Maybe when 20% of Oregonians are driving plug-in hybrids that pay almost no gas tax, we can start talking about whether they're avoiding their fair share.


Posted by: on 4 Apr 09

"When participants went to the gas station to fill up, a wireless scanner at the pump detected the GPS receiver and recorded the car’s current mileage, which was then sent to a central database to determine miles driven since the last payment. No specific location data was transmitted."

"When you're through being sick, you may want to check out the results of the Oregon test, which did not in fact treat 100 miles in the city as the same as 100 miles in the country. Rather, it imposed a 10-cent per mile charge on driving during rush hour in the Portland metropolitan area."

How do you reconcile these two statements that you made? And what happens if the GPS receiver loses reception for some reason? How are those miles tracked - do they just default to the highest rate?

This is a (poor) solution looking for a problem. I'll ask the question you cannot answer: what problem does this solve that increasing the gas tax cannot solve?


Posted by: Jeff on 5 Apr 09

You are comparing this mileage tax to a congestion tax when you have no business doing so. You say that Stockholm is a supporting example. What Stockholm did is completely different -- they effectively implemented a toll at control points using automatic number plate recognition, which requires no modification to vehicles. The costs of that system are nowhere near what the costs of a mileage tax would be.


Posted by: Jeff on 5 Apr 09

I agree with at least one commenter who mentioned that a mileage tax could be tailored to treat different vehicles differently based on the amount of road damage they do. Heavier vehicles should be taxed at a higher rate than lighter ones.

One disturbing contradiction I notice in this whole plan, and my one major objection, is this:

"The state only gets odometer information, not information about vehicle location", yet somehow the system knows which of your miles were driven in-state as opposed to out-of-state, requiring location to be known and collectible, if not collected...yet. The same knowledge of location is needed even more specifically to implement congestion charges within a certain metro area. Even more disturbing is that knowledge of *when* a vehicle was in a congestion zone is also needed to calculate the correct surcharges.

Time/location information may not be reported now, but it must be known in order to implement the proposed tax plan correctly. It is only a matter of time before the GPS data used to collect a mileage tax is augmented and used to track any individual the government deems worthy of tracking.


Posted by: John on 6 Apr 09

The police are already using cell phone records to track individuals. There's no reason that shouldn't be considered a violation of the 4th amendment when done without probably cause, but it happens all the time. Embedding GPS into every car? And despite the way you sell it as "no location data is transferred", you admit yourself that location must be recorded for this tax to be administered correctly. You don't have to be very paranoid to see exactly how this is going to go wrong.

And for what? What benefits does this serve? All the study apparently showed is that willing volunteers will tolerate the intrusion and that it's only a minor inconvenience. But what GOOD does it do? How is this beneficial to the environment in any way that a gas tax is not?


Posted by: Rick Earvin on 7 Apr 09

I am always amazed at the intelligent ingenuity of those who without some hidden agenda seek to find good alternative solutions to government revenue problems and I am always appalled at the consistent failure to speak of the issue of tax justice as if tax justice was not also the solution to the issue of adequate government revenue.

No I am not talking about the so-called Fair Tax or the Flat Tax or any other idea primarily designed to apply to Federal tax revenue issues. I am talking about the one idea that specifically applies to the States who are the sovereign owners of land. This is what I mean.

The idea of the mileage tax is aimed at solving the problem of adequate funding for Oregon's (read any State's) transportation infrastructure. The most fundamental fact about transportation infrastructure is that it has the economic effect of increasing land value. Every government service but especially transportation services (because their effect is so obvious) increases land values. Government services do not increase the value of improvements, they only increase the underlying land values. Our education system has failed to make this obvious distinction clear to the ordinary citizen despite the fact that all economists who have studied this issue agree. They just don't talk about it much. They don't talk about it much because of the political implications which has something to do why the ordinary citizen is grossly uninformed.

The obvious implication is that since roads and other government services increase land values who else should pay for them but land owners. And if land owners do not pay for them, which they obviously do not, it becomes necessary for the State to tax something/somebody else and the only other two things to tax are labor and capital. In so far as land owners do not pay for the public services that make their land more valuable, they are subsidized by the truly productive parts of the community/economy to their detriment. This subsidy has long historical roots but it is a subsidy none the less and is in fact a free lunch to landowners of which there is not supposed to be any in our system. Most economists say that too but they contradict themselves and are just plain wrong.

The economically just solution to adequate funding for Oregon's transportation budget is to increase taxes on the land value created by the transportation system. This would allow Oregon and any other State that went in this direction to untax the wages of working people and the earned profit from real capital investment. This would provide tax justice because not everyone owns land although everyone who rents land has to pay the increased rental value of land caused by the transportation system. So those of us who do not own land pay twice for our roads and we do that whether or not we drive since just about everything else we do is taxed. I have to give Oregon credit for not having a sales tax but every other State that does, including my own native California, does so and really socks it to non-landowners and the poor.

The idea of some kind of user fee for use of our roads makes sense and whether you do it by a gas tax or a mileage tax is a worthy subject of discussion. But you treat the very large 900 pound gorilla of government subsidies to land owners as if he does not exist.

And this gorilla, because he can make a profit from government subsidies of all kinds and especially transportation services, is encouraged to speculate with land, engage in every manner of public chicanery to get permission to impose urban sprawl on the landscape and drive up the cost of housing.

We could actually solve the problem of adequate funding for Oregon's transportation budget (and most of the rest of local and State budgetary problems) merely by having the good sense to take back community created land values as a prime source of revenue to pay for government services all of which make land more valuable.

Good luck.


Posted by: Wendell Fitzgerald on 13 Apr 09

A tax is a tax is a tax. People drive to work earn a living to feed their family, pay their mortgage. Truckers drive their vehicles to deliver goods to stores so that the public can have goods to buy. When fuel in Florida hit $4.00 per gallon independant truckers parked their rigs. The economy failed. The average joe bought vehicles which give high MPG to help make the country be less fuel dependant on foreign oil and cost less to drive. This plan punishes all of these individuals and benefits no one except the company which produces the GPS device and installs it in your vehicle. This plan is intrusive, big brotherish and expensive to implement. Find something else to tax, like the air we breath or the water we drink. Oh excues me we do pay tax on water already. New Jersey wanted to discourage people from smoking so they imposed a sin tax on cigarettes, it worked, people stopped smoking then the state is worried because the tobacco tax is not generating the revenue that it did. Lets face it. Government is greedy and will find any excuse to tax the public. Stop this thing now before we pay tax on just breathing. Stop looking to TAX AMERICA TO DEATH and find solutions such as better quality materials for roadways, more furgal government expendatures and simple solutions to problems. Stop funding organizations that do not have a positive impact on society. Cut the cost of government and put that toward the roads. Or how about this. While Obama is spending trillions like water, how about using some of that money for the roads. It is our tax money paying anyhow. STOP TAXING US TO DEATH.


Posted by: Rich on 4 Jan 10

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