Pros and Cons of a Vehicle Mileage Tax

As an article by Citylab put it in 2013, “if the gas tax were a fuel gauge, its needle would be quivering pretty close to Empty.” With companies like Tesla pushing quick industry change for electric or more fuel-efficient vehicles, this is ever truer today.

As more people purchase hybrid, electric, and fuel-efficient vehicles, gas tax revenues decline, states are eager to find a more sustainable source of revenue, and national politicians are watching closely.

Instead of using a tax on fuel consumption as a way of financing transportation infrastructure, a vehicle miles traveled tax (VMT) fee has been championed as the alternative. A VMT charges motorists based on their road usage measured in mileage through the use of an onboard vehicle (telematics) device to capture the distance driven by a vehicle through GPS.

For example, in the state of Washington, the break-even point for a gas tax versus a VMT is around 22 miles per gallon. So, drivers whose vehicles get 22+ mpg would likely pay more in road usage charges than they do with gas taxes, while drivers who get less than that would pay less in road usage charges.

For over a decade now, a VMT has been proposed and piloted in various states (Oregon, California, Colorado and Washington have completed pilot programs).

What are the Pros and Cons of a Vehicle Mileage Tax versus charging a gas tax to generate state or national revenue for infrastructure and other projects?

The Benefits of a Vehicle Miles Tax

It’s fair across all vehicle types.  From a funding perspective, a VMT fee would certainly level the playing field: instead of paying road taxes at the pump, drivers would pay based on how much they drive.  A VMT would capture revenue from electric vehicles, which don’t pay into the Highway Trust Fund.

A 2017 study in the Journal of Public Economics found that implementing a VMT tax is a more efficient policy than raising the gasoline tax to improve the financial and economic condition of the highway system. "A VMT tax designed to increase highway spending $55 billion per year increases annual welfare by $10.5 billion or nearly 20% more than a gasoline tax does.”

This is because: A VMT tax is better at targeting its tax to and affecting the behavior of those drivers who create the greatest externalities, and greater fuel economy has less effect on a VMT and its benefits while reduces a gasoline tax and its benefits.

The Cons of a Vehicle Mileage Tax

From a social acceptance standpoint, Privacy concerns remain the biggest fear, that a mileage-based system could allow the government to track the whereabouts and movements of motorists.

Advocates say privacy concerns are addressable. For example, Oregon set limits to the recording data in their pilot programs, which included: units programmed to not track exact map location, units programmed to aggregate travel during particular periods versus exact times, limited who has access to the data, and have the data destroyed 30 days after it is required for payment processing or dispute resolution.

The largest problem with a VMT is cost.  From a tax collection standpoint, the current gas taxes are simple to administer at the pump and can be adjusted using existing mechanisms. The VMT tax would require installing new technology in all personal and commercial cars and trucks to track distance traveled, would require every vehicle owner to periodically report distance tax and create a costly new bureaucracy that would have to audit these reports.  The added bureaucracy alone could eat up any gains in tax revenue.

Cities, counties and States all have laws on the books that distribute gas tax revenues.  A VMT would require all of these laws be changed and current funding mechanisms recalibrated.

A VMT could reward users or increase purchases of less efficient vehicles while monetarily punishing drivers of energy-efficient cars by leveling similar charges for all drivers, weakening incentives to buy energy-efficient electric and hybrid cars.

Some drivers in rural areas worry may have to pay more because they drive farther between destinations than do urban drivers. They argue that while they do drive greater distances on the roads, they drive at faster speeds that are more fuel-efficient.

And, these on-board distance tracking devices may be vulnerable to tampering.

What is the takeaway?

There is no simple, cost efficient answer that is available with today’s technology and social climate.  The debate needs to continue.  Technology needs to advance.  The problem is that an increase in funding for infrastructure cannot wait.

In the end, something will change: the gas tax in your state will increase, a vehicle mileage tax may be implemented, registration or DMV fees will increase, or a new option will be created.  In all likelihood, the answer will be a long term conversion process that starts with what can be done today (tax increase) and move towards a VMT as technology improves and social attitudes change.

One thing is for certain, we all need to educate ourselves and make our voices heard within this debate. Deciding what is fair, what is greenest, and what will best improve highway infrastructure should be a balanced decision and not a one sided mandate hijacked by political zealots.

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