The gas tax is based on a simple principle: the money helps maintain the roads drivers use based on the fuel they drive with. But as Americans use gas less due to climate change concerns, and opt more for electric cars, the gas tax looks like an outdated revenue generator — one Pennsylvania Gov. Tom Wolf already pledged to phase out. As a replacement, Transportation Secretary Pete Buttigieg has proposed taxing people by the miles they drive rather than taxing gas directly.
Though the idea did not make it into the Biden administration’s infrastructure plan, it has had bipartisan interest for years and is unlikely to go away anytime soon. For InsideSources, two researchers consider the proposal as they debate: How should the government update the gas tax?
Tax by mile and reward greener vehicles.
By Dean Baker
Moving away from a gas tax as we move to electric cars is a commonsense measure that can have large environmental benefits. If we had relied on a tax on hay to fund road maintenance in the days of horse-drawn carriages, we obviously would need to make a change as we moved to gas-powered cars. It is the same now as we move from gas to electric vehicles.
Applying this logic, reports say the Biden administration is considering replacing the federal gas tax with a per-mile charge. It would also look to push states in the same direction. (Roughly 60% of the gas tax is at the state level.)
The logic of this shift is simple. If we continue to allow gas taxes to fund road repairs and improvements, we will see large shortfalls in revenue as people shift to electric cars.
Since electric cars do just as much damage to roads as gas-powered cars, we will still need to spend just as much on maintaining roads in a world with electric cars as we do today. Also, as long as most of the electricity is still coming from fossil fuels, we should want the tax to discourage driving in general.
The arithmetic of a per-mile tax is straightforward. If we have state and local taxes averaging 50 cents a gallon, and cars get on average 20 miles a gallon, then we would want the tax to be 2.5 cents a mile to get the same amount of revenue as we did with the gas tax. Of course, we may want to have a higher tax if the goal is to raise more revenue or have a stronger disincentive to drive, but the logic is clear.
We can also structure the tax to discourage people from driving less fuel-efficient cars. For example, we can make the tax 4 cents a mile on a big SUV that gets just 15 miles a gallon, while making it 2 cents a gallon for cars that get more than 40 miles to a gallon.
The administration of this tax should not be a major problem. Drivers can be required to have their odometers checked at regular intervals. For example, the annual car inspection required in many states can include an odometer reading that is the basis for tax payment.
“Drivers can be required to have their odometers checked at regular intervals.”
An advantage of going to a pay-by-the-mile fee is that we could also look to structure other payments along the same line, including car registration fees. Currently, most states charge a fixed fee that is independent of how much people drive. But if we changed the registration fee to a per-mile charge, it would more closely reflect the damage that a driver is doing to the road system and help to discourage driving.
If a state charges a $200 fee and the average number of miles driven was 10,000 a year, this would translate into a 2 cents per mile charge. For a car that gets 20 miles to a gallon, this would provide the same disincentive to drive as a 40 cents a gallon gas tax.
We could also look to structure car insurance payments on a per-mile basis. While some insurers do charge drivers on a per-mile basis, the vast majority of policies are still sold on a fixed-fee basis.
Replacing the gas tax with a per-mile fee makes a lot of sense as we move away from gas-powered cars. The Biden administration would be smart to move forward with it.
Dean Baker is an economist and cofounder of the Center for Economic and Policy Research. He wrote this for InsideSources.com.
Keep driving fees flat no matter the vehicle.
By Iain Murray
It’s plain that the federal gas tax is past its sell-by date. Originally introduced as a fair way for automobile drivers to pay for the upkeep of the roads they use, it has become less fair as rich people buy hybrid and electric vehicles.
A system of mileage-based user fees (MBUFs), where people pay depending on how many miles they drive, makes sense. However, some people think the fee needs to be different depending on how many emissions your vehicle puts out. That doesn’t make sense, and it repeats the mistakes of the current gas tax.
The gas tax was fair because it was based on a simple principle: user pays, user benefits. Before the gas tax, all taxpayers paid for the upkeep of roads and building new ones. But this was particularly unfair to the poorest people who could not afford a car. The creation of the Highway Trust Fund in 1956 and the introduction of the gas tax to pay for it switched the burden to the people who used roads and highways.
Yet in recent years, the gas tax has moved more toward a “some users pay/all users benefit” model. With the introduction of hybrid-electric and all-electric vehicles, some road users have been paying far less than their fair share for the wear and tear they impose on the roads as they pay less or nothing at all in gas taxes.
This unfairness is compounded by the fact that hybrid or electric vehicle (EV) owners are likely to be well-educated, young, and comparatively well-off. A study by TrueCar.com, for example, found that the average owner of a Ford Focus Electric had a household income of $199,000 a year. The people who are paying the most for road upkeep are more likely to be less well-educated, older, and poorer than the hybrid/EV owners.
Switching to MBUFs would help alleviate this disparity. Hybrid and EV owners would once again pay into the Highway Trust Fund according to how much they use the roads. Some people argue that MBUFs are unfair on rural Americans who drive longer distances, but it’s no more unfair than the gas tax. Indeed, MBUFs may be fairer in that respect, because rural Americans tend to drive older, less fuel-efficient vehicles.
“In reality, these are not a tax but a user fee, like a toll (road tolls, without toll plazas).”
This is why the proposal to move to a “green” mileage fee is less desirable than a flat rate. The idea is that because of the problems associated with vehicle emissions, there would be lower rates for less-emitting vehicles. This repeats the unfairness of the gas tax. Internal combustion engines create emissions. Vehicle emissions have nothing to do with road infrastructure upkeep. Hybrids and EVs impose wear-and-tear on roads and highways as much as do traditional cars.
Unfortunately, MBUFs are misunderstood. They are often erroneously called — including by Transportation Secretary Pete Buttigieg recently — a mileage “tax.” In reality, they are not a tax but a user fee, like a toll (road tolls, without toll plazas).
There are also unfounded allegations that mileage trackers would form a kind of national surveillance program, enabling the federal government to know where we are and where we are going at any point in time. But state pilot programs have already proven alert to this sensitivity and have built-in safeguards to prevent such misuse of user data.
We need to fund our roads and highways. Congress should make the adequate and fair funding of our nation’s highway infrastructure a priority, fully replacing the gas tax with a mileage-based user fee.
Iain Murray is a vice president for the Competitive Enterprise Institute. He wrote this for InsideSources.com.