Metropolis

We’ll Have to Tax Drivers by the Mile Eventually

And we shouldn’t stop there.

Bumper to bumper traffic on the 405 freeway in Los Angeles
What are we doing here? Lucy Nicholson/Reuters

Ever since he was a mayor running for president, Transportation Secretary Pete Buttigieg has been saying nice things about a tax on vehicle miles traveled. The idea is simple: tax drivers for every mile they drive. That way, as the U.S. automobile fleet electrifies and the gas tax revenues dwindle, we’ll still have money to pay for roads.

Buttigieg spoke favorably about a VMT tax in a congressional hearing last week and in conversation with a CNBC reporter. “If we believe in that user-pays principle—the idea that how we pay for roads is based on how much you drive—the gas tax used to be the obvious way to do it. It’s not anymore. A so-called VMT tax or mileage tax, whatever you want to call it, could be a way to do it.”

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The secretary walked it back on Monday, and the idea did not make it into President Joe Biden’s infrastructure plan, which proposes funding more than a trillion dollars in projects from other revenue sources including an increased corporate income tax.

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Sooner or later, however, the VMT’s time will come, because the gas tax isn’t cutting it—and hasn’t for some time. Between 1947 and 2010, according to a study by PIRG, the amount of money the U.S. has spent on highways and roads surpassed revenues from gas taxes and other user fees by $800 billion in today’s dollars. The ratio is getting worse, since the federal gas tax hasn’t been raised in almost three decades and shows diminishing returns as cars get more fuel-efficient.

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As a result, the gas tax has ceased to function as an effective user fee. Local road spending, in particular, comes largely from other taxes. Most states also exempt gasoline from sales tax, meaning that even state gas tax revenues are effectively redistributions from sales tax collections. In either case, the subsidy for roads from the public at large is immense.

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There’s a sense that a VMT tax would represent a radical departure from this model, which you can see in the way Buttigieg’s comments have riled up commenters across the political spectrum—an outraged and confused truck driver on Fox News, a righteous exurban socialist in the Virginia state legislature; a progressive writer at Grist. The complaint is the exact one that makes the gas tax a political football: It’s a tax on the middle class. (And with Democrats’ new focus on equity, you can easily make the case it hits low-income families hardest: While lower-income households drive less, transportation is a larger share of their expenses.)

Taxing mileage has one big advantage over taxing gas: It captures electric vehicles. It has one big disadvantage: It reduces the incentive to buy electric or fuel-efficient vehicles. (Oh, and you need to use a transponder or something to figure out how much everyone drives.) But their societal impacts are not so different.

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One great thing about the gas tax is that it’s what economists call a Pigouvian tax: a levy on an activity with significant negative externalities. Some of those negative effects of driving—greenhouse gas emissions and local air pollution—are a little less targeted by a VMT tax. Others, such as congestion, crashes, and the degraded quality of neighborhoods and the environment, get disincentivized by both taxes.

If VMT is just a way to raise money, then sure, it would be more progressive to use graduated property, income, or corporate taxes to fill the highway spending holes. But the fact that driving is an obligation thrust upon us all by poor planning, unrestrained highway budgets, and expensive housing in walkable neighborhoods does not make it an inequitable thing to tax. The inequity is not the tax; it’s the structural factors that make it so hard to find housing and jobs that do not include car ownership as a price of admission.

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VMT, like the gas tax, should be a levy that discourages the externalities associated with driving, many of which aren’t going away with piecemeal electrification. Its political unpopularity should restrain us from raising more money to build more useless roads. And if we’re designing a tax not just to raise money, but also to create marginal obstacles to driving more, then why not refine our approach even further? If the problem you want to fix is traffic injuries, adopt higher registration fees for high-bumper SUVs and pickups. If the problem is neighborhood congestion, put in parking meters. If you want the fee to be more equitable, attach steeper prices to each subsequent car registration—richer households have more cars—in addition to a baseline user fee based on how much someone drives.

This kind of innovation is already afoot in road pricing. Not only have two states—Oregon and Utah—adopted VMT pilots, but New York City has finally gotten federal approval to get started pricing access to its central business district. Several states now have dynamic tolling on highways to reduce traffic by the minute.

Taxing mileage may be a decent substitute for the gas tax, warts and all. But why stop there?

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