Higher Gas Taxes Won't Work

Last week, President Trump said he’d “consider” raising the gas tax. But Republicans in Congress swiftly doused the suggestion with cold water. That’s not much of a surprise: The national gas tax has been, for many years, a “third rail” for tax-averse Republicans and Democrats alike. Americans pay Uncle Sam 18.4 cents per gallon at the pump, a number that hasn’t budged since 1993 as lawmakers are loathe to levy what many view as a regressive fee.

On the government side, that revenue buys nearly 40 percent less today than it did that year, as construction costs have steadily risen. Meanwhile, badly needed transportation infrastructure repairs are estimated at $3 trillion nationally. By 2020, only half of the Highway Trust Fund—the primary source of federal funding for highways and transit—will come directly from the gas tax. The rest will come from tens of billions of dollars transferred from the general fund, and a chunk that previously helped manage leaking gas storage tanks.

That’s because every year the HTF drags with it a multi-billion dollar shortfall. The Congressional Budget Office estimates it’ll be up to $18 billion from 2021 through 2026. Federal gas tax revenues—the fund’s primary intended feeder—dropped off in the recession and have recovered only modestly since as vehicles become more fuel-efficient and Americans drive less overall. And once more electric vehicles take to the roads, those revenues could take a nosedive.

To make up for spending gaps, strapped states are scrambling in different directions. More than twenty, including California, Tennessee, and New Jersey—note the mix of red and blue—have raised gas taxes on their own. Others are beginning to index taxes to at least keep pace with inflation. Ten states have slapped extra registration fees on electric and hybrid vehicles, and a growing number are looking to tax cars that use alternative fuels.

Still more, like Indiana, are turning to toll roads with higher and higher fees. Drivers pay on more than 5,000 miles of U.S. roads today, up 15 percent over the past decade. And a growing share of these roads are financed, built, and operated by private investors and companies, an arrangement that can seem to spell “free road” in the eyes of public leaders. But the public always winds up paying for them, in the end—and sometimes more dearly than they would have through more traditional means.

On their own, none of these options are likely to make up for shortfalls in transportation funding. No one likes to pay for a something that has long seemed “free,” and no politician likes to try to convince constituents that they should.

One possible solution—the mileage fee, or VMT tax—seems to be one whose time has come. The tax reorients the transportation “product” that users are paying for with a philosophy more in step with how people travel now. Simply put, drivers pay for their travel based on a per-mile rate. It’s almost like slapping a toll on every road, except that mileage could be measured and billed based on a low-fi transponder, or a high-tech piece of cellphone gadgetry. Drivers could alternatively pay through a one-time annual fee, if they hate the feeling of being “tracked.”

Mileage fees would still need to be kept up with inflation, but they wouldn’t be sensitive to gains in fuel efficiency. They could also be adjusted to reward environmentally sensitive vehicle choices, and policymakers could send chunks of VMT tax revenues towards transit investments, so the fees needn’t be punitive or regressive.

Oregon (the state that invented the gas tax back in 1919) is testing the country’s first mileage fee in a voluntary pilot that began in 2015. OReGO invited 5,000 participants to pay 1.5 cents per mile driven, in lieu of the 30 cent state fuel tax. Some drivers received a gas-tax rebate, while others paid more than they would have at the pump; balanced out between VMT and gas taxes, SUV and Prius drivers pay roughly the same. The program has retained about 85 percent of its original participants, and soon lawmakers will deliberate on whether to make it permanent, mandatory, and statewide. California and Minnesota have since launched similar pilots, and Pennsylvania, Connecticut, New Hampshire, Delaware, and Vermont are gearing up to do the same. Last year, Tennessee created a special 1-cent-per-mile levy specifically for autonomous vehicles, as part of legislation establishing the parameters for AV testing. That may be an idea seriously worth pursuing and expanding.

A VMT tax attracts a politically diverse following: State DOT leaders and policy wonks love it, but so do libertarians at the Reason Foundation. And in many ways, taxing miles better matches the current transportation landscape: This is, after all, an era where technology is rewriting the rules on how people move, and how they relate to transportation. Mobility is evolving into a service, rather than a commodity, that can be summoned and paid for by an phone—whether by buying a subway ticket, locating a bike rental, or hailing a shared autonomous vehicle. A VMT tax matches that reality. It would be a true “user fee,” gathering dollars from those who drive on roads, without forcing those who get around using other modes to subsidize them (which the current transportation funding structure does, given how weak the gas tax has become).

Some experts are also predicting that VMT could be a windfall, once shared autonomous vehicle fleets offer cheap rides without the hassle of driving or parking. Charging per mile, rather than per gallon, offers a way capture some of that value—and also help send pricing signals to control a potentially traffic-snarling spike in local traffic congestion. Driving taxes may be inevitable, but they could make a lot more sense.