Argument for a flat tax for both electric and gas drivers

There is ongoing discussion in several states about a flat tax for electric and gas cars per mile driven:

“EV drivers want to pay their fair share,” says Jay Friedland, the legislative director of Plug-In America. “We want the roads to be supported, but we’re still in a phase of early adoption and there’s a greater public good.”

That “greater good” is to give electric vehicle technology a chance to crack through its niche status, reducing the continued reliance on fossil fuels from unstable nations. The more state and federal breaks EVs get, the greater the possibility that drivers will look to them as an alternative. But they still need to contribute to the greater good of roads and infrastructure, and Plug-In America agrees.

The advocacy group believes a flat road tax is a better solution – taxing all drivers equally, no matter how their vehicle is powered. That idea is gaining momentum.

In New Jersey, a road tax proposed by Sen. James Whelan, a Democrat from Atlantic City, would charge all drivers 0.00839 cents per mile driven. For the average driver who travels 12,000 miles per year, that comes to a little more than $100. It’s an easy way for Jersey to recoup some cash from EV drivers without targeting them directly.

It’s the same idea with Virginia’s HB 2313, which eliminates the $0.175/gallon tax on fuels in favor of a tax of 3.5 percent for gasoline and six percent for diesel fuel, while imposing larger annual registration fees and a $64 per year for EVs, hybrids and alt-fuel vehicles.

There seem to be several competing interests in these discussions:

1. States who desperately need money to pay for roads.

2. Advocates of electric vehicles who don’t want new taxes and fees to limit the adoption of electric vehicles.

3. Where are the gasoline drivers and the trucking industries? There has not been much reporting on their status in these ongoing discussions…

Another factor that makes these conversations more difficult is the potential changing nature of driving in the coming years. States need certain levels of funding for roads but it is unclear how many people will be driving what and what the status of miles driven per capita will be down the road. All of this means it is harder to make projections and also suggests that whatever is decided in the near future will probably have to be revisited soon.

Oregon testing out five different ways to pay vehicle-miles traveled tax

The state of Oregon is currently running a small test program with five different ways of paying a vehicle-miles driven tax:

The new usage charge pilot program, which began in November and runs through the end of this month, involves about 40 volunteers from state government. Participants chose the tracking plan that best fit their privacy tastes and will pay 1.56 cents for each mile driven — receiving a credit for any gas tax paid during the test period. The idea is to make sure each tracking option works in practice…

The five tracking plans vary in terms of oversight. Two are managed by the Oregon D.O.T., three by a third-party vendor. They also vary in terms of payment: some require setting up an online account tied to credit or debit information, others go the old fashion route of monthly bills payable by check.

The key difference is the tracking system. Two advanced plans track mileage data as well as movement with a G.P.S.; the advantage here is that users aren’t charged a fee for driving on private or out-of-state roads — only public roads in Oregon. Two basic plans involve an odometer-type device that collects mileage data but has no G.P.S. to track movement. Users may end up paying a little more, but they’re getting privacy in return.

The most primitive plan, for people who want the most privacy, uses no tracking device at all. Users pre-pay a flat fee that assumes a monthly mileage. At some point, say when the car gets official inspections, the odometer is checked and the difference between miles paid and miles driven is reconciled…

Despite these cautions, Oregon is preparing to take its system public soon. The state legislature has prepared a bill that would implement a V.M.T. fee on all vehicles getting 55 miles per gallon or better. (The change only applies to car models beginning in 2015, however, and as currently written the law wouldn’t go into effect until that year.) Olson says the bill will be introduced sometime in 2013.

It sounds like this small test is more about finding about which of the five options are doable and/or appealing, mainly on the dimension of privacy, rather than asking whether a vehicles miles tax should be implemented at all. As the article notes, a bill will come up this year to start the ball rolling. If this is the case, why not run a test bigger than 40 state employees?

Another thought: the system is set up so that drivers only pay for driving on Oregon’s public roads. Wouldn’t a comprehensive system of driving tax collection have to account for driving in other states?

Broke highway fund might mean up to 250% increase in pay-per-mile tax

Here is more grist for the rumor mills about a pay-per-mile driving tax: a new GAO report suggests the tax will need to be increased from current levels.

An on-again, off-again move by the Obama administration to scrap the federal gas tax in favor of a pay-per-mile fee would boost the tab to Americans as high as 250 percent, raising their current tax of 18.4 cents a gallon to as high as 46 cents, according to a new government study.

But without a tax increase, said the Government Accountability Office study, the government’s highway fund is going to go dry. One reason the fund is going broke: President Obama’s push for fuel efficient cars has resulted in better mileage, and fewer stops at the pump.

The GAO study is just the latest review of federal spending that paints a grim picture of the nation’s infrastructure. Just keeping spending at current levels, the GAO said, would require a near doubling of the gas tax to 32 cents a gallon, and that would jump to as high as 46 cents should the federal government add spending to fix crumbling infrastructure and build new roads.

The average driver pays about $96 a year in federal gas taxes, said GAO. Should the administration seek to raise the highway trust fund from $34 billion to the $78 billion needed to fix and maintain roads, that could rise to $248. Translated into a pay-per-mile plan, drivers would face a tax of 2.2 cents per mile compared to the 0.9 cents they pay now. Trucks would pay far more.

Infrastructure and driving are not cheap. I imagine this might easily be the most unpopular tax in years even with its relatively small impact on individual drivers. How can the federal government make driving, a necessity in America due to our planning and past policies plus a favorite activity of Americans for decades, more expensive?

Considering replacing the gas tax with a tax per mile driven or a flat fee for electric vehicles

Here is a recap of efforts to replace the gasoline tax and the relatively less revenue collected because the federal gas tax hasn’t risen in years and the future decrease in gas consumption with more hybrids, electric cars, and fuel-efficient vehicles:

The favored answer of road engineers? Taxing by the mile driven. A handful of states — Oregon, Minnesota and Nevada — have already tested ways to use GPS and other electronics to adjust taxes. In the Nevada and Oregon tests, drivers had devices installed on their cars that sent data to special fuel pumps; those pumps automatically adjusted their fees based on how far the vehicles had driven, without revealing data that would amount to tracking drivers.

The GAO told Congress this week it should allow a similar test on electric vehicles and commercial trucks, and estimated that a pay-by-the-mile tax of 0.9 cents to 2.2 cents per mile designed to replace fuel taxes would raise a typical driver’s costs from $98 to between $108 to $248.

But it’s not the only answer to filling this financial sinkhole. Washington state lawmakers have put a flat fee of $100 a year on electric vehicles to make up for the gas taxes they don’t generate, and Oregon lawmakers may follow suit. In Virgina, Gov. Bob McDonald has proposed abolishing the gas tax entirely, replacing it with a sales tax and a new $100 fee on “alternative fuel” cars and trucks. That idea has already drawn fire from critics who point out that it would make Virginians who never drive pay for roads while letting people who travel through the state do so for free.

I’ve covered the proposals in some of these states earlier (see here) but I haven’t heard of the electric car flat fee. I imagine a flat fee will not be specific enough to target electric cars – why not just go by a reduced mile-driven rate as well to account for all of the roads being used?

I suspect the first state to institute this will encounter lots of protests. At what point can a tax like this be implemented: before taxes start to decline or only once it is really clear that gas tax revenues aren’t enough to cover road costs? A case could be made that we are already at the second scenario and need more revenue to cover federal roads.

Vehicles miles-traveled tax in “five to ten years” as states run pilot studies

With more fuel efficient vehicles and higher federal government standards, several states are starting pilot programs to test a vehicles miles-traveled tax:

Minnesota and Oregon already are testing technology to keep track of mileage. Other states, including Washington and Nevada, are preparing similar projects.

The efforts are being prompted by the fact that gasoline taxes no longer provide enough money to pay for roads and bridges — especially when Congress and many state legislatures are reluctant to increase taxes imposed on each gallon. The federal tax of 18.4 cents a gallon hasn’t been raised in nearly two decades. More than half the states have not raised their gas tax this millennium. Fuel-efficiency also is behind the efforts. Electric-powered vehicles are growing in numbers. In 2009, President Obama set the nation’s most aggressive fuel-efficiency standards for new vehicles, ordering a 40% increase by 2016.

“As the (national vehicle) fleet becomes more fuel efficient … we’re going to lose a lot of revenue from the gas tax. If it’s not replaced, we’re going to see our transportation infrastructure deteriorate,” says Joshua Schank, president of the non-partisan Eno Center for Transportation in Washington, D.C. He expects to see a state vehicle miles-traveled (VMT) tax within the next five to 10 years…

The greatest obstacle to a miles-traveled tax has been privacy concerns. When Oregon ran a pilot program six years ago, motorists’ major objection was to in-vehicle boxes used to track miles driven, says James Whitty of the Oregon Department of Transportation. “They didn’t like the government boxes. They didn’t like the GPS mandate,” he says…

In Minnesota, 500 volunteers in largely urban Hennepin and mostly rural Wright counties have been testing a system using software installed on smartphones, says Chris Krueger, spokeswoman for the Minnesota Department of Transportation. “We can collect trip info and be able to simulate what it would be like to have a mileage-based user fee,” she says.

This blog has covered this issue before here, here, and here. This is a classic case of unintended consequences: trying to improve fuel efficiency may be a good goal but it has revenue ramifications.

Several thoughts about these pilot studies:

1. If citizens say they don’t like the programs, will that matter in the long run? States still need revenue whether drivers like the method of getting that revenue or not.

2. I haven’t seen this addressed: would drivers continue to pay a gasoline tax as well as a miles-driven tax? We are a long way from even a sizeable majority of people owning electric cars. How would you balance the two taxes to insure certain levels of revenue?

3. This is somewhat tongue in cheek but would you prefer to have the government tracking you by in-vehicle GPS or your smartphone? Or in Illinois and other similar states, by your toll transponder? Remember, you may not be able to answer “none of the above.”

4. Is a vehicles miles-traveled tax something that could get a politician voted out of office? Americans do like their freedom to drive…without considering how much it costs all-around.

h/t Instapundit

Fuel efficiency goes up, gas tax revenues go down $50 billion (or so)

A new report from the Congressional Budget Office suggests that increasing standards for fuel efficiency will leave a large deficit in highway funding:

This week, the CBO issued a new report that looked at how the upcoming, higher CAFE fuel economy rules will affect the Highway Trust Fund. The short answer? Between 2012 and 2022, the Fund will see revenues that are $57 billion lower than they would be without the new CAFE rules. The slightly longer answer:

The proposed CAFE standards eventually would cause a significant reduction in in fuel consumption by light-duty vehicles. That decrease in fuel consumption would result in a proportionate drop in gasoline tax receipts: CBO estimates that the proposed CAFE standards would gradually lower gasoline tax revenues, eventually causing them to fall by 21 percent. That full effect would not be realized until 2040 because the standards would gradually increase in stringency (only reaching their maximum level in 2025) and because the vehicle fleet changes slowly as older vehicles are replaced with new ones.

To illustrate the effect that the standards would eventually have on the trust fund’s cash flows (in 2040 and beyond), CBO examined how a 21 percent reduction in gasoline tax collections would alter the agency’s current budget projections for the trust fund, which span the period from 2012 through 2022. CBO estimates that such a decrease would result in a $57 billion drop in revenues credited to the fund over those 11 years, a 13 percent reduction in the total receipts credited to the fund.

The CBO suggests three ways to deal with the shortfalls: do nothing (i.e., keep on transferring money from the general fund), spend less on highways and mass transit or raise the gas tax (or other taxes and direct them to the Fund). An increase to the gas tax wouldn’t have to be huge. Just five cents a gallon would be enough to offset the $57 billion, the CBO says. But until Congress can agree on this simple change, there’s always the voluntary gas tax.

This isn’t idle speculation. Joel noted some commentary about this in early February 2012.

This reminds me of a recent post about the possible unsustainability of suburbia. Under the current system, we either need more drivers overall (which could then be based on population growth plus more car ownership) or people to use more gasoline (which goes against a push to be more green). Are either of these options really optimal or even desirable? Of course, the gas tax could be increased by a small amount (perhaps just a few pennies?) and the deficit would disappear. However, would this simply lead to more gas tax hikes down the road compared to the option of resetting the system so that highways are funded through a more consistent mechanism? Which politicians want to tackle this? Perhaps we are closer to a tax per mile driven than we might know?

h/t Instapundit

Fuel efficiency = bankrupt highways?

Brian hit the issue almost a year ago, but Jordan Weissmann at the Atlantic recently re-focused attention on the problem of funding U.S. highways with fuel taxes:

Since back in the Eisenhower era, the federal government has maintained a Highway Trust Fund, paid for mostly by taxes on fuel, that helps cover the repair and construction of our country’s roads, bridges, and mass transit. The idea was that drivers themselves should bear some of the cost the roads they used. Unfortunately, Congress hasn’t raised the gas tax since 1993. Since then, inflation has eaten away at least a third of its value…[and] two new challenges [have] emerged. First, Americans started caring about the fuel efficiency again, as skyrocketing oil prices ended the era of gas-guzzling SUVs. Then the recession struck, and penny-pinching drivers logged fewer miles to save on gas.

The upshot, of course, is that

less money is flowing into the Highway Trust Fund, which is now facing potential insolvency in 2013, according to the Congressional Budget Office.

I guess it’s good that fuel efficiency gains are having an impact?  (Ah, unintended consequences.)  Looks like we’re headed into a world where cars will have to start paying by the mile–or the highways are going to get a lot worse.

Further details on proposed Illinois toll hike; Illinois tolls rather low

The Chicago Tribune reports today that the Illinois State Toll Highway Authority wants to raise toll rates in order to raise money for several new projects, including a reconstruction of I-90 (the Jane Addams), adding an interchange between I-294 and I-57 (one of the few places in the US where two interstates do not have an interchange), extending the Elgin-O’Hare, and undertaking several studies for possible new roads (extending Route 53, the Illiana Expressway).

But there is more to this story. While the Authority wants money to undertake these projects, there is another defense for raising rates: Illinois toll rates are lower than other states.

The council urged that tolls on the existing tollway system be raised to levels “consistent with national averages” to generate revenue for the EOWB [Elgin-O’Hare West Bypass]. Currently, Illinois Tollway users pay the equivalent of 3 cents per mile, while the national average is 7 cents per mile, officials say. Using that model could result in a systemwide doubling of the current rate, to 80 cents from 40 cents for passenger vehicles using I-PASS, and to $1.60 from 80 cents for cash customers…

The report also said tolls on the EOWB itself should be “consistent with the level of other new toll projects nationwide,” or about 20 cents a mile. This suggests that tolls on the new highway could be as much as seven times the current rate, or $2.80 for passenger vehicles using I-PASS and $5.60 for cash customers…

In addition, the council’s report recommends that future toll increases be indexed to inflation. The last time the tollway hiked car tolls was 2005, but that was the cash rate. Cars with I-PASS pay the same rate as they did in 1983, the tollway says…
The report also urges consideration of so-called congestion pricing strategies, in which vehicles pay higher tolls during peak hours or for express lanes; extending the tollway’s bond maturity term up to 40 years; and giving further study to tolling adjacent freeways. That could mean imposing tolls on I-290.

I’m guessing Chicago area residents will not like this as it makes driving more expensive (particularly with the price of gas) and there will general grumbling about how the tolls were supposed to disappear at some point. But, roads have to be paid for somehow and whether motorists pay through tolls or gas taxes, they will pay for the privilege of using roads. If anything, perhaps Chicago area residents should be surprised that tolls have stayed so low when other states have raised them. Since we can probably assume that the cost of road building has gone up like everything else, it sounds like tolls should increase.

If there is a larger issue to be concerned about, we could ask about the planning undertaken by the state. A road like the Illiana Expressway has been discussed for decades and waiting this long to undergo a major study and then go through with the construction will cost more now than it would have years ago. The Elgin-O’Hare has been a running joke for a while. Additionally, it would be interesting to see how close or far planners were in estimating the number of vehicles that would use the highways each day. The early expressways in the area, I-294 and I-290 are two examples, have seen much more traffic than was initially anticipated, driving up costs. Overall, more foresight could have saved money.

Proposal for government to study driving tax by mile

I’ve occasionally written about the gas tax (see here and here for recent examples) as well alternative forms of deriving tax revenue from driving (see here). There is a report that the Obama administration has proposed a new federal study that would look at taxing drivers per mile driven:

The Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive…

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

The CBO report was requested by Senate Budget Committee Chairman Kent Conrad (D-ND), who has proposed taxing cars by the mile as a way to increase federal highway revenues…

The administration seems to be aware of the need to prepare the public for what would likely be a controversial change to the way highway funds are collected. For example, the office is called on to serve a public relations function, as the draft says it should “increase public awareness regarding the need for an alternative funding source for surface transportation programs and provide information on possible approaches.”

I have several quick thoughts about this:

1. Doesn’t the government have to go to some method like this in the future with the advent of electric cars? If people are buying less gasoline (which is generally thought of as a good thing), then gas tax revenue will decrease.

2. If a tax like this were implemented, does this deincentivize purchasing electric cars or more fuel-efficient vehicles? Although you might pay less at the pump for gas, you would then pay more for driving longer distances.

3. How much of this is going to turn into a public relations battle? It is interesting that the proposed study would look into this. I’m sure a few things would worry some people:

a. How is the government going to use this tracking information since they will already be tracking the miles driven? Of course, this is potentially already an issue in states with toll transponders like Illinois and the IPass system

b. Is this a tax on mobility or on the American way of life (i.e. sprawl)? It would be interesting to see how this new tax might compare to existing costs for driving. Overall, this article reminds me that driving is not cheap – it may feel like freedom but it is expensive freedom.

4. Is a tax for miles-driven too broad? Different vehicle sizes put different stress on road surfaces. Should a tax also take this into account? Or is the difference between a Honda Insight and a Honda Pilot not significant?

5. There could be some interesting consequences of this. Would there be fewer road trips and driving vacations? Would the airline industry (and the rail/high speed rail industry) benefit? Would putting the costs into miles driven rather than tacked onto a gallon of gasoline make people think twice about purchasing a home further from their work?

One possible positive of higher gas prices: less deaths

For the average American, driving or riding in a car is perhaps their most risky daily activity. So if gas prices go up (with the Chicago region leading the nation) and driving goes down, then less Americans may be killed on the road. This is according to a recent study of Mississippi data:

Traffic accidents seem to go down — even ones because of drunken driving — as gas prices go up.

“The results suggest that prices have both short-term and intermediate-term effects on reducing traffic crashes,” Guangqing Chi, assistant professor of sociology at Mississippi State University and demographer at Mississippi State’s Social Science Research Center, and colleagues wrote.

In their research, published in two recent studies in the Journal of Safety Research and Accident Analysis & Prevention, the researchers looked at car accidents in Mississippi between 2004 and 2008, and tracked gas prices during that period. The prices seemed to affect younger drivers the most in the short-term (over one month) and older drivers and men over a one-year period.

In addition, the investigators found a strong link between higher costs at the pump and a drop in frequency of drunken-driving crashes, they noted in a university news release.

This is data from one state so it would be interesting to see if such relationships hold in additional states.

But these arguments about safety in light of generally negative public opinion (regarding gas prices here) can provoke some contentious conversations. Some members of the public are bound to ask whether the government is most interested in safety or in revenue? The same issue has been raised with red-light cameras and I also ran into similar arguments about particular developments when doing research into the growth of nearby suburbs.

For the average American, would they rather have a higher risk while driving (which they probably don’t think about anyway) or lower gas prices? This seem easy to answer and I wonder if the safety argument will gain any traction at all.