The Gas Tax Versus a VMT Tax: Is ‘All of the Above’ an Option?

gas_tax.png(Chart: Oregon DOT)

The prospect of an eventual move away from the gas tax and towards
a fee
on vehicle miles traveled (VMT) has sparked consternation
from some well-known bloggers this week, with Matt Yglesias asserting
that "a VMT [tax] has no advantages whatsoever over higher gasoline
taxes" and Andrew Samwick suggesting
that declining fuel tax revenues mean that tax rates need to go even

Leaving aside the political
facing a 10-cent gas tax increase, as suggested last
year by the National Commission on Surface Transportation Infrastructure
Financing (a similar panel of experts called for a gradual 40-cent
in 2008), significant questions surround the gas tax’s
viability as a long-term revenue raiser for infrastructure improvements
— regardless of how high it goes.

Take the example of Oregon, the first state to levy a fuel tax in
the year 1919. Now the state’s gas tax ranks 21st in the nation, but it
began planning ahead for a VMT tax nine years ago after repeated
attempts to raise fuel fees ran into political opposition. In its final
report on the state’s "road user fee pilot program," the Oregon DOT
noted that gas tax revenue couldn’t keep pace with the rise in
fuel-efficient autos (see the above chart).

The state DOT’s report, written by James Whitty of the innovative
partnerships office, took a candid look at the upsides and downsides of
the gas tax (emphasis mine):

From the standpoint of tax policy, the gas tax is close to
perfection. Nearly all the hallmarks of good tax policy can be found in
Oregon’s efficient gas tax collection system. The gas tax has the
inherent flaw, however, of lacking a direct nexus to road use.
As a consequence of this flaw, it will become obvious in 10-15 years, if
not earlier, that the gas tax has failed its originally intended
purpose as a reliable source of revenue for the state’s road system.

That absence of a "direct nexus to road use" is a concept not
easily understood by many Americans, especially drivers long inundated
with misleading claims that the gas tax constitutes a user fee. As Ryan
Avent has explained
on this page
, a user fee assumes that everyone on the road pays for
the time they spend and the burden they place on it.

But while 25 gallons of taxed gas will last for an estimated 725
miles in a 2010 Ford Escape hybrid SUV (at a combined 29 miles per
gallon), the lighter 2010 Ford Mustang (estimated at 19 miles per
gallon) would go just 425 miles while paying the same amount of gas tax.
The heavier car ends up putting more stress on the road while paying
less for it. Is that an equitable system of maintaining the
transportation network?

As Oregon discovered with its VMT pilot program, the gas tax and a
mileage fee can be charged at the same time by tallying miles traveled
at the pump based on a system of local zones, similar to what some areas
use for taxicab charges. As the website Portland Transport showed in a
pictorial post
from 2007, congestion-pricing features could be
added to customer receipts in a separate column from the VMT tax and gas

So perhaps the question isn’t whether to sell the public on a
viable VMT tax as a replacement for the gas tax, but how to make both
policy tools work effectively in tandem.

As for the civil-liberties ramifications of VMT charging, it’s hard
to see American drivers who have already embraced the Garmin
and the Onstar navigation system — which connects you with a
live "advisor" — rejecting en masse one more device in their vehicles.
Especially if that device helps fund transportation more equitably.

  • Omri

    Checkov’s Law of Politics says that if a means of surveillance is on the stage in the first act, it will be misused by the end of the third act. Congestion pricing is already misused to put people under surveillance in London. This will be no different.

    You can tax gas, you can tax electric car battery charges and battery changes, and you can tax parking, and none of those require logging every mile a driver drives. This is an incredibly bad idea.

  • The percentage of cars on our streets that are electric is very close to zero. Worry about them once they make up more than 5% of the US car fleet. Increasing the gas tax requires no cost to implement whereas the VMT will require gadgets in every car and a bureaucracy to implement it all. Heavy cars and trucks should pay more for their share of the wear and tear on roads. The gas tax only partially accomplishes this. Yearly vehicle registration fees should also be substantially higher the heavier the vehicle. Higher gas taxes will encourage smaller, lighter cars as well as more rail freight. This will in turn decrease how much we have to spend on road maintenance and slightly delay how quickly we make the planet uninhabitable for our species .

  • patrick

    Totally agree with Omri. And on top of that, while in some situations a heavier vehicle will pay less in tax, that is the exception, not the rule, plus the gas tax penalizes gas guzlers, whereas a VMT penalizes gas sippers.

    Also, the idea that “gas tax revenue couldn’t keep pace with the rise in fuel-efficient autos” is ridiculous. You just raise the tax. Ideally you would index the tax to both inflation and the average mpg of cars, thus if mpg doubles, so does this. The advantage of this is that its a self reinforcing system. The higher mpg goes, the higher the gas tax goes, and therefore the more incentive for people to own better mpg cars, and it just keeps going.

  • You cannot tax electric car battery charges. How do you know whether someone’s home electricity is being used to charge a car or to run an electric appliance?

    The Brookings Institution has come up with a good solution to the privacy concern. It has proposed using GPS devices that report on the number of miles driven in roads of different congestion classes but that do not report on the actual road that people are driving on. Thus, midtown Manhattan and the Long Island Expressway might both be in the highest congestion class and have the highest per-mile fee, but the system does not know whether the driver has traveled 10 miles in Manhattan or on the LIE (or on a freeway in Los Angeles, for that matter).

    At some point, we are going to go to plug-in hybrids, and we will have to shift to a VMT fee. There is no feasible way to make people pay per electric charge.

    When we do that, we should go to an anti-congestion VMT fee, like the one proposed by the Brookings Institution.

    Congestion is just the result of giving away a scarce resource (road space in cities) for free. It could be eliminated by correct pricing.

  • Omri

    “You cannot tax electric car battery charges. How do you know whether someone’s home electricity is being used to charge a car or to run an electric appliance?”

    Every time you charge and discharge a car battery, you add entropy to its innards until it needs to be switched out for reconditioning. In the current generation of electric cars, that can be once a month. That’s where the tax comes in.

  • hUcKiE

    Your car already tracks every mile that you drive. It’s called an odometer. It’s required by law, and tampering with it is a crime (albeit a minor one). Some of the proposals out there are pretty interesting and easily get around any big brother privacy concerns. As an example, one proposed technology would let your car talk to the gas pump and report how many miles have been travelled since the last fill-up. You then get the “tax” added to your fuel bill. A similar set-up could work with cars fueled through any source.

    However, the big problem that current gas taxes have both a national and state component. So in order to move to a mileage based tax, your car has to know how many miles were driven in each state, and that, of course, is where the privacy issues come into the picture. That being said, it’s still a good idea. Additionally, there’s also no reason why you can’t have a hybrid system of taxation, where there is both a VMT based tax and fuel based taxes (which penalizes inefficient vehicles).

    Even as someone who generally likes to drive, I think that it’s absolutely insane that road users do not fully pay for the road infrastructure. And it’s even more insane that our governor views gas tax money as just another source of revenue that he can raid to balance the budget, which only serves to compound the problems we have with our infrastructure.

  • hUcKiE

    Also, regarding electric cars, the new smart electric meters will most definitely be able to distinguish the amount of energy used to charge your car vs. the amount of energy used to power your appliances. If you read up on smart meters, some of the goals of those proposal include having your electric meter actually talk to each individual appliance in order to negotiate lower power consumption during times when the grid is overloaded. Technology is amazing and none of these proposals are beyond our current technology. There just needs to be the political will to pick a direction and do it.

  • “the new smart electric meters will most definitely be able to distinguish the amount of energy used to charge your car vs. the amount of energy used to power your appliances.”

    So why is there no privacy concern in having the electric company know which appliances you are using and when you are using them? Why is that any better than having a VMT tax that knows how many mines you drive?

    (By contrast, there is an immense benefit to a VMT tax with congestion pricing: it can eliminate congestion.)

    To get real about it: if they start taxing different types of electricity at different rates, we can expect there to be a major (illegal) cottage industry in devices to fool your smart meter.

  • “Every time you charge and discharge a car battery, you add entropy to its innards until it needs to be switched out for reconditioning. … That’s where the tax comes in.”

    Can you provide a reference to a reliable source that has proposed taxing electric car charges in that way? I read a lot about transportation issues, and I have never heard anyone propose it before.

    I am more likely to be convinced by a reliable source than by an angry guy writing blog comments under a pseudonym.

  • patrick

    Another problem with VMT is it discourages adoption of electric vehicles. If gas is taxed, there’s more reason to use vehicles that don’t use gas.

    While it may be true that we someday will need a VMT due to there being too many electric vehicles, that day is decades away.

    We can do congestion pricing far more simply than a VMT: tolls on congested roadways.

    The bay bridge will soon be doing congestion pricing via tolls.

  • Patrick, let me know when I-580 starts doing congestion pricing via tolls. That is what we need to stop sprawl in Tracy and the Central Valley. Of course, it will not come until we have a VMT fee with congestion pricing; there is no way that they will start tolling freeways.

    I agree that it will be a while before we have enough electric vehicles to make it necessary to go to a VMT fee. I will adopt Taomom’s standard: “Worry about them once they make up more than 5% of the US car fleet.” I think that, when we reach that level, people will start to get up in arms about electric car owners (who will be wealthier than average) not paying their fair share of road maintenance. My guess is ten years from now.

    At that point, I hope we will adopt a VMT fee with congestion pricing, rather than the flat per-mile fees that are usually discussed now. Then the VMT fee will have the huge added benefit of reducing congestion and thus reducing the pressure to build more freeways to deal with congestion. (I know that building freeways doesn’t really reduce congestion, but that is the solution that the public will press for until we have congestion pricing on all roads = a vmt fee with congestion pricing.)

  • ZA

    Gas tax or VMT fee? It’s all about how you want to price our public resources.

    I don’t know about you, but I don’t think under-$3.00 even begins to pay for my turning a gallon of refined dead dinosaur into work, 20 pounds of CO2, and a handful of other gases and particles in an engine designed & built within regulations.

    Also, I can’t go hunting or fishing any time of year without paying for a permit – and I can be penalized for exceeding my limits. Why should congested roads be any different?

    In 2008, when fuel ‘shot up’ to near $5.00/gallon, we only *started* to see the changed behavior (carpooling, filling tires with air, buses, trains, bikes) we all need, and almost all that surplus revenue went to the energy companies, not publicworks.

    Now we go into debt for ARRA? Talk about disconnected dots. Where’s that windfall tax?

  • patrick

    Charles, in my opinion, it would be much easier to put tolls on 580 than implement a nationwide VMT.

    I highly doubt that there will be 5% electric cars in 10 years, even 20 years seems a stretch to me. I also don’t think 5% is the right number, more like 15%.

    And when it is necessary to go to VMT, how are we going to go retrofit the 100s of millions of cars that don’t have any tracking system? Who’s going to pay for it? They are already adding congestion HOT lanes, I think (hope!) a not too long time after that, freeways will be opened up for general tolling. In fact, tolling can be a means of implementing VMT, some countries have toll stations every few tens of miles.

    As ZA points out, the impacts from cars are far more than just congestion and road maintenance costs. And registration fees can be based on vehicle weight, as taomom suggested.

    A VMT may be necessary some day, but I still believe that day is way off, and currently and for the foreseeable future the gas tax makes far more sense than VMT. I agree that whenever a VMT becomes necessary, the smart way to do it would be based on miles as well as congestion, but that becomes more complicated as well, there would be higher privacy issues, as now not only would the system nead to know how far you have driven, but where as well.

  • Omri

    “Can you provide a reference to a reliable source that has proposed taxing electric car charges in that way? I read a lot about transportation issues, and I have never heard anyone propose it before.”

    Go to Better Place Technologies’ website and look up the demo on automated battery switchouts.

    As to who proposed taxing them, I did.

    Also as above, smart-grid hookups, which are the only way to allow charging at home without massive overloads and blackouts, make car charges easy to detect, and therefore tax.

    And again, neither of those require major surveillance infrastructures.

  • Nik Kaestner

    It seems to me that there are three basic policy goals at play here:

    1. The desire to fund our road system in an equitable way.
    2. The desire to reduce congestion.
    3. The desire to reduce greenhouse gases and air pollution.

    In addition, there are (at least) four policy instruments:

    1. A Vehicle Miles Traveled (VMT) levy
    2. A gas tax
    3. A toll or congestion charge
    4. A Vehicle License Fee (VLF) or registration fee

    In the ideal world, where start-up costs and concerns about privacy are not an issue, a VMT levy could theoretically combine a per-mile charge (policy goal 1) with congestion pricing (policy goal 2) as well as a vehicle emissions-based modifier (policy goal 3). In Germany, trucks are electronically charged based on mileage and emissions class, holding at least some road users accountable for the miles they travel and encouraging fleet owners to phase in more fuel-efficient vehicles. And under a proposed Dutch scheme, drivers would be charged a VMT levy based on vehicle size, weight, time of use, and CO2 emissions. The big problem, of course, is that we don not live in an ideal world and setting up the infrastructure to collect a VMT is cost-prohibitive when we can’t even raise the funds to support local transit systems or keep our roads in good repair.

    Luckily, the other three policy tools can accomplish the same goals with minimal upfront investment and hassle:

    1. A gas tax does a reasonably god job of incorporating vehicle miles traveled and fuel economy. No, it does not perfectly correlate to road usage, but that’s because it is also incorporating greenhouse gas emissions and thereby addressing two policy goals. A gas tax encourages people to drive less as well as switch to more fuel efficient vehicles. I consider this a policy bonus, not a handicap.
    2. Tolls or congestion charges applied at bridges (Bay Area) or along highways (New England) can serve to address the only policy goal not addressed by a gas tax: reducing congestion And the infrastructure for collecting tolls either already exists or is relatively easy to build.
    3. A VLF cannot replace congestion charges, but it does provide another way of encouraging the purchase of more fuel efficient and/or less polluting vehicles. In most European countries, registration fees are based on the emissions class and or greenhouse gas emission of the vehicle purchased. The same thing could be done in California.

    In my humble opinion, the most cost-effective way to move forward would therefore be to index the gas tax to inflation and fuel economy improvements, expand tolls to cover all major commute corridors, and (just or fun), institute a pollution-based VLF. Politically feasible? Probably not. But hey, that can be the topic of another conversation…



Thoughts at a Workshop On Replacing CA’s Gas Tax With a Mileage Fee

Earlier this week, I attended a California Sustainable Transportation Funding Workshop, hosted by Caltrans, Southern California Association of Governments (SCAG), the California Transportation Commission (CTC), and the Mileage-Based User Fee Alliance (MBUFA). The half-day program focused on how the state of California could shift from our current gas tax funding stream to one based on […]