Federal motor fuel taxes, which are supposed to cover federal spending on highways and transit, no longer generate enough revenue to do so and have lost ground as an effective measure of how much drivers use public roads. This deficit is expected to grow even further as more people drive hybrid or fully electric cars, which don’t pay (or pay much) in fuel taxes, but still increase wear and tear on the roads.
A popular and fairer solution, long endorsed by economists, is to base the tax on miles traveled (VMT) rather than taxing gallons of fuel or vehicle type in an effort to estimate the use of vehicle infrastructure. transportation by drivers.
Spending has outstripped revenue for more than a decade, and even before the coronavirus pandemic, projections from the Congressional Budget Office showed the gap widening substantially. The gap between income and expenses was just over $ 8 billion in 2020 and is expected to grow to approximately $ 13.5 billion by 2025. Given that COVID-19 has damaged the economy, real deficits are almost certainly be worse. Without additional funding from other sources of tax revenue (current funding expires in 2021), the deficit is expected to grow to $ 70 billion in five years.
One of the main reasons for the increased gap is improved fuel efficiency. Given that automobiles drive further on a gallon of gasoline today than they did in 1993 (the last time the federal gasoline tax was increased, to 18.4 cents per gallon), the tax revenue collected per mile traveled per vehicle (VMT ) have decreased in inflation-adjusted terms.
Plus, inflation means these dollars don’t buy as much road maintenance as they did 27 years ago. Even if vehicles didn’t get better mileage today, the 1993 tax rate of 18.4 cents a gallon would have to be more than 30 cents a gallon today to have the same purchasing power. States have faced a similar problem, but unlike the federal government, many have increased their gasoline taxes in recent years.
Finally, the growth in electric vehicle sales could eventually turn the motor fuel tax into an anachronism.
The federal government’s current transportation financing legislation, the United States Surface Transportation Repair Act (FAST), expired this year, but has been extended for another year.
Congress understandably pummeled the issue until 2021 given the coronavirus pandemic. However, it will be increasingly difficult for the White House and Congress to ignore this problem. Given the increasingly frequent calls to spend more money to repair and replace America’s highways and bridges as part of a stimulus package, this is an opportunity for lawmakers to rethink how we pay for infrastructure.
How a VMT Tax Would Work
A tax on miles traveled, rather than a tax on a gallon of gasoline, comes much closer to approaching each driver’s share of road repairs and repairs.
Of course, it is not that simple politically. A VMT tax that raised enough revenue to cover federal spending would be a net tax increase: In 2018, highway fund outlays were $ 55 billion and Americans covered 3.225 trillion miles on their vehicles. That translates to a VMT tax of 1.7 cents per mile, or an average federal VMT tax bill of about $ 200 per vehicle, given that the average vehicle traveled 11,843 miles. Instead, the average amount paid in motor fuel taxes was about $ 120.
Increasing taxes on electric vehicle and fuel-efficient car owners would also create political challenges. These drivers would experience a larger tax increase, while less efficient car drivers could see a smaller increase.
In practice, a VMT tax could be implemented by charging a flat fee or by developing a more advanced tracking system with different fees. A flat rate per mile (taking into account the weight of the vehicle) measured by the vehicle’s odometer would be the simplest version. Odometer readings can be made in annual inspections or by installing an on-board unit that electronically transmits VMT to a central computer.
The problem with a simple solution is that it severely limits the way that the tax can account for major differences in travel. For example, the existing problem of effectively taxing the use of non-public roads (private roads or agricultural land) would persist. It also makes it difficult to accurately allocate money between states that replace their own gasoline taxes with a VMT plan, which many would likely do if the federal government provided the necessary framework.
Solving these problems would require both the miles traveled and the location to be tracked, while at the same time allowing a higher rate to be charged, for example on urban trips rather than rural trips. Thus, a VMT would account for differences in contribution to air pollution and congestion.
While critics might argue that shorter commutes would be punished compared to longer rural ones, urban areas prone to congestion would also benefit. The increased cost of driving in urban areas would, in all likelihood, limit demand, resulting in fewer vehicles on the road.
States could also impose taxes on miles traveled in their own state, regardless of where the driver resides.
While a GPS-tracked VMT tax is more efficient, there are legitimate privacy concerns. According to a 2012 Government Accountability Office analysis, 45 of 51 state DOT officials (including Washington, DC) said that addressing privacy concerns would pose a major challenge to developing a VMT tax program in their state.
As an example of unintentional use of traffic data, divorce attorneys have used information from E-ZPass, an electronic toll collection system, to prove marital infidelity.
Despite these challenges, a VMT tax is a fair, long-term and promising option to replace motor fuel taxes as a financing mechanism for transportation spending in the future.
Ulrik Boesen is a Senior Policy Analyst at the Tax Foundation’s Center for State Tax Policy, a Washington, DC think tank focused on tax policy. Follow him on Twitter @UBoesen