Tag Archives: gas tax

Proposal for government to study driving tax by mile

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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

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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.

The relationship between gasoline prices and taxes and sprawl

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The Infrastructurist discusses  a recent study that suggests that an increase in gas prices leads to a reduction in sprawl. Here is a summary of the study:

Georges Tanguay and Ian Gingras analyzed data from the 12 largest metropolitan region in Canada for the period of 1986 to 2006 and found that higher gas prices “contributed significantly” to less sprawl:

On average, a 1% increase in gas prices has caused: i) a .32% increase in the population living in the inner city and ii) a 1.28% decrease in low-density housing units…

Tanguay and Gingras addressed this shortcoming by expanding their observations over a 20-year window. The researchers found the aforementioned link between higher gas prices and reductions in sprawl. They also report that a 1 percent increase in gas taxes led to a .2 percent reduction in commuting distance (though the effect is small, amounting to just 14 fewer meters of travel, on average).

The researchers did notice a potential mitigating factor: income. Every 1 percent rise in median income led to a .23 percent decrease in city center living. That means any reduction in sprawl that occurred as a result of rising gas prices could be offset by rising income.

So if gas prices went up more than $2 on average in the US between late 2008 and today (roughly a 140% increase), then we would expect the inner city population to grow by 44.8% (.32% increase in population*140) over the same time period? Perhaps this is extrapolating beyond the scope of this data but this would be quite a population shift. Even a smaller increase in gas prices, say 10%, would lead to a predicted increase of 3.2% in inner city population, still a sizable increase.

It would be helpful to take the same kind of analysis and apply it to American metropolitan areas. Does the same relationship hold? I suspect it might not as some big central cities have not really gained much population in the last decade (see the case of Chicago or New York City). Could some of this observation come from how the Canadian government measures city centers or from a higher proportion of Canadians living in the “city center” (the study suggests the proportion of the population living in city centers is “the average for Canadian CMAs is 55%” – the American population is at least 50% suburban)? Does Canadian culture have less emphasis on sprawl (and single-family homes with yards, driving, etc.) compared to American culture?

This is an interesting finding but I would be interested in seeing more research on this. A 2004 American study cited in the discussion reached this conclusion: “The results show that every penny increase in the state gasoline
tax in the late 1980s is associated with nearly a five square-mile reduction in the size of an average urbanized area.” Additionally, I would be curious to hear more about why this study used the “average-sized” urban area in a state as the dependent variable:

The dependent variable, the average-sized urban area in the state, ranges from a high of337.8 square miles (Arizona, given the large size of the Phoenix metropolitan area) to a low of29.34 square miles (West Virginia). The mean of the dependent variable is just over 120 square miles, which, for point of reference, is slightly more than double the size of the urban area contained in the Burlington, Vermont metropolitan area, or just under the size of the urbanized land area in the Anchorage, Alaska metropolitan area.

I see that the gas tax measure of interest is at the state level but using state level data for cities seems strange as urbanized areas can vary quite a bit (think of the comparison between Chicago, IL and Springfield, IL – both urban areas but quite different in scale and urbanization). Additionally, a measure like the percentage of state residents who use public transportation to get to work would seem to be related to the size of urban areas. Why not simply use each urbanized area as a case?

How to offset the lower gas tax revenues from electric car drivers

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With more electric cars coming to market, more state governments are discussing how to offset the loss of gas tax revenues from electric car drivers:

After years of urging residents to buy fuel-efficient cars and giving them tax breaks to do it, Washington state lawmakers are considering a measure to charge them a $100 annual fee — what would be the nation’s first electric car fee.

State lawmakers grappling with a $5 billion deficit are facing declining gas tax revenue, which means less money to maintain or improve roads.

“Electric vehicles put just as much wear and tear on our roads as gas vehicles,” said Democratic state Sen. Mary Margaret Haugen, the bill’s lead sponsor. “This simply ensures that they contribute their fair share to the upkeep of our roads.”

Other states are trying to find solutions to the same problem, as cars become more fuel-efficient and, now, don’t use any gas at all.

The two main options for this are either to impose an annual fee or to base payment on how far the car travels. But the cost-per-mile approach seems to have several disadvantages (including a good amount of opposition) even though it seems like it would be the closest to the gas tax (the more you drive, the more you pay).

The last paragraphs in the article seem to hold the key: this is another instance when government is trying to catch up to the newest technology. On one hand, governments don’t want to discourage the purchase and use of electric vehicles. On the other hand, roads still need to be built and maintained. Additionally, most states are facing large deficits and can’t be going about taking in less revenue.

Regardless of what route is taken, it seems like it would be better to make decisions like these sooner rather than later so that future electric car drivers know what they are getting into.

The possible shifts in the foundations of tax bases

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Governments are dependent on tax bases for revenue. Hopefully, the tax base meets financial expectations and if things are going well, the taxes bring increased revenues, leading to more spending (and saving?) possibilities. But what happens when tax bases decrease?

This is an issue facing a number of government bodies and a number of taxes are affected:

-I was reminded of this again by this piece (h/t Instapundit) which suggests that increasing income taxes on the rich may not work out in the long run as economic troubles can greatly affect the incomes of the rich.

-Property taxes are affected by the assessed value of properties. If property values are down, such as in this economic crisis where it appears housing prices will be depressed for quite a while, then tax revenue may go down. (Or they may not – can local communities really afford to have less money coming in through property taxes?)

-So called “vice taxes,” on things like cigarettes, may be self-defeating: as people smoke less, the revenue will slowly dry up.

-The gas tax will be interesting to watch in future years: as the government pushes for more electric vehicles and with higher gas prices, this could mean that less gasoline is purchased. Money to pay for new roads and maintenance will have to come from somewhere.

A couple of questions about these different taxes:

1. Is the uncertainty about tax revenues in the last few years really that different from other points in history? If not, what have people done in the past?

2. Might we expect to see some major changes in taxation in the coming years as governments look for different (perhaps more stable?) or more sources of revenue?

3. How are sales taxes or VATs affected by economic crises?

(The realm of taxes is not my area of expertise but I do know the importance of some of this to communities: limited or decreasing property and sales taxes lead to big issues with budgets which then affect services which then angers residents.)

A few comments by Joel (3/31/2011):

One way that cities and states are seeking to increase collection revenues is through enhanced sales tax enforcement.  As Amazon is finding out, for example, governments have their ways of pressuring online retailers.

Of course, to a certain extent, this is simply turning into an arms race, with businesses increasing their lobbying budgets and hiring more tax attorneys.

Federal budget issue: increased fuel effiency, reduced revenues from the gasoline tax

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Amidst discussions about infrastructure and the price of gasoline, Obama’s administration has called for an increase in transportation spending. But where exactly the money will come from to fund this increase is unclear:

[Transportation Secretary Ray LaHood] said Obama is not in favor of raising the gas tax in a “lousy economy.”

The new tax would be necessary, in part, because the gasoline tax used to fund the highway trust fund is collecting less revenue than projected due to increasing fuel efficiency.

The exchange between Sessions and LaHood degenerated into a shouting match, with the Transportation secretary emphasizing that infrastructure can be improved and jobs created while paying down the debt.

This is one negative consequence of increased fuel efficiency: less gasoline will be purchased so without a gas tax increase, revenue from this source falls. This might call for some new ways to derive tax revenue from driving. How about more tolls? Or taxing drivers per mile driven?