Mileage tax: Good or bad?

Should the freeway be free?

A recent story about a pilot study for a mileage tax in Iowa prompted a couple of negative reactions on our Facebook page.

Why a mileage tax? Because as cars get more efficient, revenue from fuel taxes isn’t keeping pace with the costs of road infrastructure. Drivers of hybrid and electric vehicles are essentially exempted from paying for their share of the roadway.

Many would say this is a feature, not a bug. There’s a persistent argument that a tax on miles driven, rather than on fuel consumed, would eliminate an incentive for people to buy more fuel-efficient cars.

I’m not so sure about that.

For starters, consider that buying a fuel-efficient car isn’t always a purely rational economic decision. Some researchers found that hybrid owners, for instance, are primarily motivated by the identity and image the cars project — just like the Jeep owner who never leaves the pavement but still wants people to think he’s adventurous.

And even if you eliminated the gasoline tax and replaced it with a mileage tax, there’s still a financial incentive to buy the more fuel-efficient car, because either way, you’re still spending less money on gas. State and federal gasoline taxes average about 50 cents per gallon — if those taxes went away today, gas would still be more than $3 a gallon, and local TV newscasters would still be hyperventilating about it.

The purely pragmatic will stick with the economy car because it’s cheaper to purchase, maintain and insure. And the person plunking down $40,000 for a Chevy Volt can probably afford to disregard a slight reduction in the price of gas.

To be sure, any proposed mileage tax would be politically unpopular, because it would involve installing a GPS or other tracking device in cars, which raises obvious privacy concerns. The goal of the Iowa study was to see if participants would eventually get over fears that “Big Brother” was watching their every move.

But should such technology become widespread, it opens up all sorts of possibilities for encouraging fuel conservation.

The whole point of the mileage tax is to ensure that all road users are paying for their share of road repairs and maintenance. So wouldn’t it only be fair to assess drivers of heavy, less efficient vehicles at a higher rate? After all, they do more damage to the roadway. Many states already charge higher registration fees based on weight.

You could also theoretically charge different rates for different roads at different times of day. Imagine the ability to impose real-time congestion pricing on every freeway in America — a concept that, in London, has resulted in reduced traffic and improved transit service. The data would also make it possible for insurance companies to reward drivers who avoid peak driving times with lower rates.

One could argue that the gasoline tax already does a lot of these things, and that’s pretty much my point. Raising the gas tax has been a political non-starter for years, so if a mileage tax becomes more palatable to the public (and I’m not suggesting it necessarily will be), and we end up with an equitable way to make people pay for the roads while still creating incentives to drive less, what’s not to love?

Photo by drain via Creative Commons

6 thoughts on “Mileage tax: Good or bad?

  1. I dunno how this could fly. We would pay for miles driven and the Fed business tax code compensates for them. Allot of paper moves to get more money from the Fed. Still, from the State view it seems more fair, but I think it should be pushed back until the amount of electric powered miles is far more significant than it is now..

  2. Very well summarized, Ken. You’ve really hit all of the major points. An eventual transition to a VMT charge is inevitable if we want roads that work, but political will will determine when that transition happens. That change also provides an opportunity to reexamine constitutional dedications that limit gas tax funds to highways, when in reality we need more flexible funding to support the best overall transportation system not just the one with the most roads.

  3. Bad, bad, bad!!! Why can’t the federal government figure out how to live within their means just like my family has to do? If this vmt is added to the already high gas prices, I will have to make more changes in the way my household budget is spent in order to balance my checkbook every month. Why can’t they get that?

  4. Well, A) this is a state proposal, not a federal one, and B) the issue isn’t so much about the government “living within its means” as much as not having enough gasoline tax revenue to keep up with infrastructure costs.
    I assume the people opposed to a mileage tax are all in favor of raising the gasoline tax instead. That money has to come from somewhere.

  5. “Well, A) this is a state proposal, not a federal one”
    Ken, since this was a university study commissioned by the feds, how do you figure the proposal is not a federal one? Federal, state and local governments should all live within their means, plus it seems that every time I hear the pro argument sides its always for things like infrastructure, education, employment, etc. With no noticeable improvements in the end.
    Additionally, you assumption that people opposed to the mileage tax are in favor of increasing the gasoline tax is ridiculous. FYI, there are people opposed to both.

  6. Dave, the problem is that as VMT and fuel economy both increase, there is more demand for road capacity and less revenue from gas taxes to pay for it. As it is, gasoline taxes only pay for about half of highway construction and maintenance, and roughly zero percent of city/local roads.
    So if you don’t want a VMT tax, and don’t want the gasoline tax to be increased, how do you propose we pay for roads? Do you want car driving to be even more heavily subsidized through the general fund? Do you want roads turned over to private tollway operators? What’s your plan?