The fuel tax is the most efficient way to collect money for highways, but in the near future, many vehicles will not be powered by fuel. So should motorists instead be taxed by how many miles they drive?
The issue is becoming more prominent because the Highway Trust Fund, from which states receive their allotments of funding, is about to hit zero. The Congressional Budget Office has said the fund will be insolvent by 2022, which means there would be no money saved for highways. The Federal Highway Administration could start implementing cash management procedures as early as this October 8, with states receiving less money starting October 12.
Tax revenues are matching what’s needed for highways and other transportation needs.
Fuel taxes, which are 18.4 cents for gasoline and 24.4 cents for diesel, haven’t been increased since 1993 and weren’t indexed to inflation. Eighteen cents paid for a lot more highway construction 28 years ago – President Clinton’s first year in office, for reference – than it does today.
The fuel tax is hard to beat when it comes to efficiency. According to a report by the American Transportation Research Institute (ATRI), collection costs are only 0.2% at the federal level, meaning the government spends $67 million to collect $33.5 billion. Costs are low because they are collected from less than 270 companies at the wholesale level, and then passed on to motorists at the pump.
Despite its efficiency, members of Congress have refused to increase the fuel tax because voters don’t like paying it. Politically, it’s basically off the table.
And eventually, the mechanical realities will catch up to the political ones as more and more people drive electric cars that don’t use gas. There have been a million such cars sold in the United States in the last decade, according to ATRI, and that number is projected by the Edison Electric Institute to grow to 18.7 million by 2030. Upper income people who can afford such cars aren’t paying the same taxes as the rest of the owners of the nation’s 272 million registered private vehicles do.
In addition to its efficiency, another advantage of the fuel tax is that it’s a user fee, meaning the people who use the government service pay for it.
We’d like to keep that aspect, which is why, tucked inside the $1 trillion, 2,700-page infrastructure bill passed by the Senate earlier this year, is a $125 million pilot program to study a vehicle miles traveled tax.
With a VMT tax, motorists pay taxes based on how many miles they drive – which is sort of how the gas tax works indirectly. Oregon and Utah already have voluntary programs to do so.
In 2018-19, 2,000 drivers participated in a pilot program in Washington. Fifty-six percent used plug-in devices in their cars to transmit the information, while 14% used a smartphone app. Another 28% reported their odometer miles, either in person or by taking a picture of their dashboard with their phones and sending it in.
Reema Griffith, executive director of the Washington State Transportation Commission, which conducted the study, said the VMT tax is a viable funding mechanism, albeit one that is not as efficient as the gas tax. With economies of scale, she said costs could fall to as low as 2-4%.
ATRI sees the collection costs as being higher – as high as 61% for now before those economies of scale kick in. In other words, it would cost $21.2 billion to collect $35 billion, which is about what the fuel tax collects now. Even if collection costs fall to 10%, that’s much more than the gas tax costs.
The VMT has other problems, including the obvious privacy issues. The tax collector will know exactly how much you and I drive, with the obvious concern being that it might also know where you and I drive. The data could be anonymized and managed by a third-party provider and not the government, but it’s still a concern.
Whether or not there’s an easy mathematical answer, there won’t be an easy political one. Everyone wants highways, but no one likes paying for them. We could just get rid of the user fee concept and pay for highways out of the general fund, which is already happening to some extent. But it’s better for taxpayers to know exactly how much they’re paying, and where it supposedly goes.
Anyone have a better idea?
Steve Brawner is a syndicated columnist who focuses on Arkansas politics, and whose work appears in 16 Arkansas publications. He is a regular contributor to Talk Business and a frequent panelist on Arkansas PBS’s public affairs show, “Arkansas Week." He publishes a blog, independentarkansas.com . Email him at email@example.com . Follow him on Twitter at @stevebrawner .