For 80 years the U.S. has relied on motor-fuel taxes to pay for road repairs, transit systems and highway construction. This system needs an overhaul because soaring fuel efficiency and a poor economy jeopardize the current tax’s fundraising power.
The federal government reaped $31.7 billion from fuel taxes in 2009, the lowest total in five years. States collected $37.9 billion in 2008, about the same amount as the year before. More recent data isn’t in yet, but further declines are inevitable. In July, carmakers and U.S. authorities agreed to raise fuel-efficiency standards 80 percent by 2025. As better mileage becomes commonplace, motorists won’t need to buy as much gasoline or diesel.
Boosting the federal gasoline tax above its current 18 cents a gallon would be a short-term fix at best, failing to address the shrinking tax base. The only way to raise adequate revenue and charge all users fairly is to restructure the road tax so it is based on miles driven, rather than fuel burned.
Efforts to design an alternative began a decade ago, led by state officials in Oregon and Minnesota, along with experts at the University of Iowa. We came up with the vehicle mileage tax. The concept is simple: The more you drive, the more you pay.
Two congressional commissions on transportation funding endorsed the mileage tax in 2008 and 2009 as the most viable alternative to the fuel tax. Since then, the federal government has made little headway in moving toward this new approach. With the traditional gasoline tax in trouble, it is imperative to focus on a more modern alternative.
Here is how a mileage tax system would work:
The system should offer motorists choices for reporting mileage driven and paying the tax. Some people may choose to report total mileage wirelessly from the vehicle’s odometer system. Others may use their own global-positioning systems, such as car-mounted navigation units or smart phones, to report mileage. (Yes, there will be an app for this.)
Some motorists may elect to bypass mileage metering altogether. They could pay a flat amount for unlimited annual driving or a variable amount based on an estimate of miles traveled. Those desiring simplicity could choose electronic reporting with automatic debits from a bank account.
The tax paid would depend on the per mile rate set by Congress for the federal portion and by state legislatures for the state portion. The combined federal and state tax rate would total about two or three cents per mile, depending on the state.
The government should apply a light touch to the collection system. Rather than relying on any particular technology, a more open approach would let the marketplace supply necessary data-collection equipment and services, certified for consistency.
Actual tax collection could be contracted to private companies, acting on behalf of the revenue agency. That way, market competition could drive down administrative costs. The government would oversee and certify providers to ensure fairness.
Paying the mileage tax could be as simple as paying a utility bill. Whether it will be as automatic as the gasoline tax embedded in a fuel purchase depends on which method motorists choose. In all cases, motorists will be better aware of the taxes they pay.
Public debate shouldn’t be hampered by concerns about a new government bureaucracy or the privacy implications of collecting GPS data. Although a mileage-tax pilot program did involve GPS receivers, there was no retention of personal data or tracking of individual vehicle movements. And a mileage tax could be implemented without requiring government-provided GPS units in motorists’ cars.
The key to having a mileage tax system without a GPS mandate is to offer motorists choices -- something consumers generally like.
To begin, the new collection system wouldn’t even need to apply to every vehicle. The current fuel tax raises a lot of revenue from larger passenger vehicles and trucks, and it could remain in place for these vehicles. The mileage tax should be focused first on electric cars and other highly fuel-efficient vehicles, to ensure that owners of such vehicles pay their fair share of roadway costs.
This year, the Oregon Legislative Assembly considered applying the mileage tax to electric vehicles and plug-in hybrids. To encourage public acceptance, the proposed tax had a delayed start of 2015 at a transitional rate of 0.85 cents per mile, rising to 1.56 cents per mile in 2018. Two legislative committees, with bipartisan support, accepted the viability of the mileage tax for these new vehicles.
At the end of the legislative session, the bill stalled, not because of concerns over privacy or a new government bureaucracy, but because it was, after all, a new tax.
Still, it remains possible to design a publicly acceptable mileage tax. And it’s increasingly necessary to do so. In the years ahead, America’s roads increasingly will be filled with highly fuel-efficient cars and trucks. Operators of those vehicles must pay appropriately for their use of the road system. Fairness demands it, and the U.S. economy needs a highway system in good working order.
(James M. Whitty, a manager at the Oregon Department of Transportation, administers the Road User Fee Task Force, an independent body created by the Oregon legislature. The opinions expressed are his own.)
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