Congressionally-created Commission Recommends Mileage Tax Instead of Fuel Tax for Transportation Infrastructure Financing
26 February 2009
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| Average annual capital needs and gap estimates, all levels of government, 2008-35 (in 2008 dollars). Click to enlarge. |
A bi-partisan Congressionally-created commission has recommended a shift from motor fuel taxes to direct fees charged to transportation infrastructure users—i.e., a federal mileage fee—as a way to reform financing of the US transportation infrastructure.
The recommendation is part of the final report issued by the National Surface Transportation Infrastructure Financing Commission, “Paying Our Way: A New Framework for Transportation Finance”. The commissioners noted that “while no first draft of a major reform is perfect”, they were unanimously offering the report as a road map for the transition to a new funding and finance framework.
The nation faces a crisis. Our surface transportation system has deteriorated to such a degree that our safety, economic competitiveness, and quality of life are at risk.
—“Paying our Way”
From 1980 to 2006, the total number of miles traveled (VMT) by automobiles increased 97%; truck VMT increased 106%. Over the same period, the total number of highway lane miles grew a scant 4.4%. More than half of the miles that Americans travel on the federal-aid highway system are on roads that are in less than good condition, more than one-quarter of the nation’s bridges are structurally deficient or functionally obsolete, and roughly one-quarter of the nation’s bus and rail assets are in marginal or poor condition, according to the report.
Real highway spending per mile traveled has fallen by nearly 50% since the federal Highway Trust Fund (HTF) was established in the late 1950s. Total combined highway and transit spending as a share of gross domestic product (GDP) has fallen by about 25% in the same period to 1.5% of GDP today.
An ever-expanding backlog of investment needs is the price of our failure to maintain funding levels—and the cost of these investments grows as we delay. Without changes to current policy, it is estimated that revenues raised by all levels of government for capital investment will total only about one-third of the roughly $200 billion necessary each year to maintain and improve the nation’s highways and transit systems.
...The problem, however, is not simply insufficient investment. Our system is underpriced. Basic economic theory tells us that when something valuable—in this case roadway space—is provided for less than its true cost, demand increases and shortages result. Shortages in our road system are manifested as congestion. All too often the prices paid by transportation system users are markedly less than the costs of providing the transportation services they use (including pavement repair)—much less the total social costs (including traffic congestion and pollution). This underpayment contributes to less efficient use of the system, increased pavement damage, capacity shortages, and congestion.
In addition to a federal mileage-based charge, the Financing Commission calls for the federal government to facilitate state and local governments’ ability to raise their share of needed revenues in ways that also spur efficient use of the system and stepped-up investment, including through tolling portions of roads and charging premiums for rush-hour travel in heavily used urban corridors (congestion pricing). More transparent charges for using infrastructure may also spur drivers to use the system more efficiently, reducing the overall investment need.
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| Summary of revenue options. Click to enlarge. |
In order to support the transition from the gas tax to a mileage-based charge, the Financing Commission recommends a ten cent per gallon increase in the federal gas tax (15 cents for diesel) and indexing the tax to inflation going forward. The gas tax, which is not currently indexed to inflation, has lost 1/3 of its purchasing power since 1993, the last time the tax was increased.
Although the Commission recommends moving away from a fuel tax, it also noted that a portion of revenues derived from a carbon tax on fuels should be allocated to the highway fund.
To the extent, however, that surface transportation fuels are subject to a charge in the future to account for their carbon emissions (e.g., a carbon tax or priced through carbon trading), an appropriate portion of those proceeds should be credited to the HTF and dedicated to funding carbon-reducing transportation strategies.
Other recommendations of the report include:
Commence the transition to a new, more direct user charge system as soon as possible and commit to deploying a comprehensive system by 2020. Because of the complexity inherent in transitioning to a new revenue system and the urgency of the need, the Commission recommends that Congress embark immediately on an aggressive research, development, and demonstration (RD&D) program.
Ensure that, once implemented, mileage-based fees and any other charges are set to meet the designated federal share of national surface transportation investment needs, and index these rates to inflation. Simply shifting from one revenue system to another will not solve the underinvestment problem if rates are not set at sufficient levels and maintained over time to meet the needs.
As the new mileage-based fee system is put in place, reduce and ultimately eliminate current fuel and other vehicle-related charges as the primary mechanism for funding the surface transportation system, recognizing that the fuel tax may play a role in meeting other important national policy objectives.
Establish VMT technology standards and require original equipment vehicle manufacturers to install standardized technology by a date certain that will accommodate the desired 2020 comprehensive implementation.
Initiate an extensive public outreach effort to create a broad understanding of the current funding problem, the proposed solution, the intended method of implementation, and the anticipated impact on individual system users.
Such a move to a mileage tax does not currently have the support of the White House. Responding to earlier comments by Secretary of Transportation Ray LaHood on examining a mileage tax, White House Press Secretary Robert Gibbs said “that [a mileage tax] is not and will not be the policy of the Obama administration.”
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A gas tax would be simpler - you just have to change the rates, no new hardware is involved.
I suppose it depends on what you are trying to do - if you are trying to reduce fuel consumption for whatever reason, a gas tax is better.
If you are trying to reduce the number of miles traveled (in whatever vehicle), and make people pay for rush hour congestion, road pricing is the way to go, but at considerable cost and delay.
So one way you tax fuel, the other way you tax congestion and road usage.
My vote would go for a straight gas tax (applied to ALL fuels including ethanol). You could price it as a carbon tax if you liked.
Posted by: mahonj | 26 February 2009 at 02:31 PM
Aren't we trying to reduce our fuel use here as well?
Here are my reasons why sticking with fuel tax is better than a mileage tax. Discuss:
Cost:
Gas tax is a system that is already in place. The administrative costs of raising the gas tax are near zero. The administrative cost in setting up a mileage tax would be huge, and administering such a tax would be labor intensive (= expensive). If you don't want MORE government workers... the ones needed to check you odometer every month/year, then you want a system that is simple to implement. The cost of 250,000,000 GPS tacking units (if that were the way they opted to go) would be billions just for the hardware, billions more to install them all, and hundreds of millions more each year to monitor and bill. How much higher would the tax have to be to cover the cost of the system?
Correlation to road wear:
The correlation between gas consumption to road wear is not perfect, in effect giving heavy vehicles a subsidy. A straight mileage tax on the other hand is even worse, giving heavy vehicles a much bigger subsidy. This could be overcome by including vehicle weight in a mileage tax, but that would increase the complexity of that system, and its cost, dramatically.
Accuracy:
Gas tax built into the pump price is very hard to cheat. Checking odometers once a year makes mileage tax very easy to cheat. Removing the GPS from your car would probably be pretty easy to do as well for anyone with any mechanical acuity.
The choice is clear to me.
Posted by: Nat Pearre | 26 February 2009 at 02:33 PM
Of course time-of-day pricing (as mahonj points out) is another matter. But that could not be done with a simple mileage tax either, it would require the GPS units or toll booths/electronic transponders.
Short of time-of-day, a gas tax does everything a mileage tax does, and it ALSO discourages the purchase of inefficient vehicles. (And my discourages, I mean it comes closer to internalizing the real cost of).
Posted by: Nat Pearre | 26 February 2009 at 02:37 PM
This plan seems to be more of the lunacy that comes out of Washington. A simple increase in gas tax can accomplish everything needed, without having to hire a bunch government workers to manage it.
Posted by: citizen | 26 February 2009 at 03:02 PM
There is a substantial difference in the distribution of who pays the milegage tax vs the gas tax.
If you are poor, and you buy a tiny car that gets very good mileage, you pay no incremental fees from the mileage tax. That's a point in its favor.
Everyone who drives pays a gas tax. Politically, I guess the mileage tax is less likely to produce backlash. If your goal is to increase the fuel efficiency of the auto fleet, the mileage tax might be the most direct way to do it. If gas prices are low when people buy cars (right now), then they are less likely to purchase high-mileage vehicles. If the mileage tax if in place, they are always reminded of the cost difference at time of purchase.
Posted by: HealthyBreeze | 26 February 2009 at 03:25 PM
Although I prefer fuel taxes, a mileage tax would not be that expensive.
I know of experimental systems in Europe that are installed on certain highways, it's only a simple camera (that is already there to monitor congestion), connected to a computer, which photographs every vehicle that passes and reads the vehicle registration plate.
(The systems work perfectly, but are not yet in use because of legal reasons)
By placing cameras at many points, they can calculate the exact distance traveled at certain times and even fine for speeding. the tax can depend on the time of the day, and day of the week.
Since the registration plate is connected to the vehicle, the tax can depend on the weight of the vehicle.
(They even installed a weighing machine inside the road to weigh the vehicle while driving over it)
The 'mileage tax' invoice can be sent monthly to the owner of the registration plate. Everything can be done by computers, with almost nobody working on it. Investments are relatively low.
Although many would have big-brother fear, it would also be great to find stolen or unlicenced cars.
Posted by: Alain | 26 February 2009 at 03:37 PM
As I pointed out before one of the reasons carb is interested in h2 and why govs across the world are is it can be taxed and the plan for h2 already includes said taxes.
Thats a fatal flaw with mass transit and bev and bio they dont fund the roads or mass transit either for that matter.
In the end barring h2 winning out massively your gona have to see some non fuel centric way of funding these things.
Posted by: wintermane2000 | 26 February 2009 at 03:45 PM
Since our problem is petroleum dependency and the incentives which maintain it, a mileage tax is aimed at exactly the wrong problem at this time.
The mere fact that this trial balloon is being floated right now shows that Congress is not merely wrong-headed, it is interested in subsidizing the guzzlers (AGAIN) while playing Big Brother. Or maybe the goal is to have a lot of make-work employment in the mileage-taxation agency, building bureaucratic empires. Then again, since our president is from the Chicago with its Big Brother I-PASS tollway system, this should not be too surprising.
Somebody please spank the people behind this. A .45 is not too severe for the purpose, methinks.
We need another $2/gallon gas tax at a minimum. That will fix most of the problems we're having, without creating the huge mess that a mileage tax would give us.
Posted by: Engineer-Poet | 26 February 2009 at 07:55 PM
Couldn't they just have car insurance people check the odometer, and then charge it that way.
Posted by: David Ahlport | 26 February 2009 at 11:28 PM
Why don't they just come out and say what they are really worried about? Plug-in Hybrids and battery electric cars. The adoption rate of these things will be faster and greater than people think, and right now there is no way to tax their electric mileage.
Posted by: Willy Bio | 27 February 2009 at 10:03 AM
EP:
While I agree with most of what you say here, the $2 gas tax will only exacerbate whatever recession there is or isn't. How do low income people pay for this rate hike in a downturn economy? Yours is a prescr*ption for uprising. Which is unwanted considering the goal to eliminate fossils.
You are correct about Big Brother systems like GPS tracking. Ridiculous. Not only technically but it will NOT pass Constitutional muster as it is a clear violation of the Fourth Amendment (as are all tracking systems forced on people.)
Most impressive is your turn toward Heston-esque justice by .45! Apparently the poet retreats on occasion.
Posted by: sulleny | 27 February 2009 at 10:14 AM
@Sulleny,
Are you an expert on Constitutional Law? Probably not based on what you just typed. There are clear and Constitutionally sound methods of using GPS without infringing upon privacy or resulting in any ability for specific location information to be stored or shared.
I wish I had a nickle for every armchair Constitutional Law expert that blabs from his Internet soap box. Go get a Law Degree and pass the BAR before even thinking about flapping those lips, will you?
Posted by: Willy Bio | 27 February 2009 at 03:06 PM
The mileage vs fuel tax debate coming at the same time as other carbon abatement schemes has multiple dimensions, the one thing we don't want is a tax that encourages inefficiency.
The number of K's traveled and road wear is proportional to fuel use with the extra vehicle costs and limited battery range suggesting that great distances will not be traveled by 'alternative fuels' for quite some time. At a time when we know the game is changing this demands a flexible approach where the change is managed to encourage innovation with incremental changes and eventually parity levelling is introduced. This is how Australia is managing the Ethanol and LPG fuel ramp ups.
Start with no tax then low increasing to parity as the (fueling etc) infrastructure becomes established.
This way the tax base is maintained and the desired shift is accelerated in step with availability.
The resources needed to improve the domestic grid for electric transport will be large in a way similar to gps and or mileage tax the main difference being that we get useful hardware and efficiency assets as opposed to more bureaucracy.
Owner generators also have to fund renewable plant and the amount that fuel taxes are avoided cold be a way of subsidy which recognises the public benefit in bringing new transport options forward.
Currently federal and state subsidies apply for low emission vehicles.
It would see to me that a broader tax on carbon that is coal, gas and oil would meet the requirements of emissions reduction and encouragement of renewable energy sources (with fossil derived H2 being taxed at that stage. Simple calculation and budget estimation.
The ability to raise the required funds whilst removing the lead from the saddle bags of innovative options.
As the revenue collection decreases with a reduction of fossil fuel use , other ways can be found to recoup road costs from "other or owner fueled road vehicles'
It is no surprise when worldwide dissatisfaction with the various emissions trading schemes is THE ISSUE for consideration that certain industry lobby will wish to minimise the costs that are likely to make business as usual more difficult.
No surprise that these groups will have a huge interest in slowing progress by their natural competition. Even when the greater public good and welfare is at stake . That's an aspect of business economics self interest that needs to be appreciated and stood up against by our elected officials.
Posted by: arnold | 27 February 2009 at 03:50 PM
Sulleny:
GPS-tracked taxing is not really the problem. The real problem is that people like Willy Bio will be in charge of it.
Posted by: Andrey Levin | 28 February 2009 at 05:22 AM
@Andrey,
Not me. I do not like the idea in general, but I just accept that it or something very similar is necessary because of all the new car technology that is just about to hit the market. Do you have a problem with that?
Posted by: Willy Bio | 28 February 2009 at 06:10 AM
The $2 gas tax will only exacerbate whatever recession there is or isn't. How do low income people pay for this rate hike in a downturn economy?
The $0.05 mileage tax will only exacerbate whatever recession there is or isn't. How do low income people pay for this rate hike in a downturn economy?
Both options do cost. One is just significantly easier to implement.
Btw, we pay about $3 per gallon tax on gas but much less income tax than Americans have to pay. So we do have more cash at the end of the month despite our higher gas tax...
Posted by: globi | 01 March 2009 at 05:07 AM
@Andrey,
I'm still waiting for a response from you.
Posted by: Willy Bio | 01 March 2009 at 06:22 AM
Quoth sulleny:
They pay for it with the dividend. The dividend lets them do things like switching to a lower-paying job with a shorter drive or buying an econo-car to drive instead of the truck and still have the same net pay. The nation pays for it with lower imports.You've never seen my comments on gun blogs, have you?
Posted by: Engineer-Poet | 01 March 2009 at 08:01 PM
I guess they are either certifiable or, as Willy Bio says ".... what they are really worried about .. Plug-in Hybrids and battery electric cars .. there is no way to tax their electric mileage."
But with new hybrids and BEVs totaling leass than 10% of sales, and maybe 3 percent on the road ?
And don't we want to subsidize them?
And aren't we? Big time?
We NEED more on the road; desperately.
Subsidize their purchase, and then tax them ?
Insanity ! No wait, politics.
Posted by: ToppaTom | 02 March 2009 at 08:22 PM
Andrey went radio silent, as did the Constitutional Law "experts". Go figure. God, their existences must be utterly miserable. Pity them. :-/
Posted by: Willy Bio | 08 March 2009 at 06:13 PM
This would be pretty hard to enforce. If you want to up the registration fees based on vehicle weight and/or gasoline consumption, that might work.
It would be an increasing tax based on how much fuel you used over a period. The more you use, the more you pay. A fixed 30 cent tax does not discourage excessive use. People have seen $2 price rise per gallon based on hedge fund manipulation. That goes to rich people and not the roads.
Posted by: SJC | 10 March 2009 at 08:31 PM