Monday, January 14, 2013

Mileage fees are a great idea -- in addition to gas taxes, not in place of them

Vehicle mileage fees have become a popular topic of conversation for those concerned with keeping our transportation system fully funded, and rightly so. Gas tax revenues are being eaten away at by inflation on the one hand and increasingly fuel-efficient cars on the other, and the Highway Trust Fund has been dependent on general fund transfers for the past 5 years. Mileage fees provide a way to increase revenues while more fairly distributing the cost of road-building and maintenance: the more you drive, the more you pay. 

The pro-VMT (vehicle-miles traveled) fee camp got another boost last month with the release of a Government Accountability Office report detailing the benefits of this system of transportation funding. Right off the bat they came out with a strong endorsement: “Mileage-­based user fee initiatives in the United States and abroad show that such fees can lead to more equitable and efficient use of roadways by charging drivers based on their actual road use and by providing pricing incentives to reduce road use.” (Streetsblog summed up the report's key points here.)

The report's authors, however, seem to be operating under the assumption that a VMT fee would be adopted as a replacement to the 18.4 cent per gallon gas tax, not as a supplementary source of revenue. If so, that's a mistake we need to avoid. 

The fairest and most efficient solution would be to retain the gas tax and index it to inflation, then set a mileage fee (also indexed to inflation) at a level that gets our total transportation funding to whatever target we choose. While either a gas tax or VMT fee by itself could be set at a level to achieve our transportation revenue goals, combining them has a unique and important benefit: it disentangles two distinct externalities of driving, pollution from gasoline and the cost of building and maintaining roads. 

Currently our gas-tax-only system only taxes drivers for the amount of pollution they release into the air, not the amount they actually use our road and highway network. It's nice that Prius drivers get a break for polluting our environment less per mile than SUV drivers, but building roads is expensive and it's clearly unfair for some to pay much more than others for the privilege of using them (assuming equal miles driven). The Prius driver also contributes just as much to congestion, and to the opportunity cost of dedicating large amounts of urban space to car travel and subsidized parking.

By adding a mileage fee to our funding mix we are able to preserve the benefits of taxing pollution (specifically, encouraging people to choose more environmentally-friendly transportation) while finally doing something to assess the other societal and financial costs of driving.

Unlike the mileage-fee-only system the GAO seems to be suggesting, this combination would also ensure that drivers of higher-mpg vehicles aren't punished. Take a look at the following chart from the GAO report:


From GAO.

The three bars under "baseline" are the estimated mileage fees paid by the average driver if we wanted to collect 1) the same amount of revenue as gas taxes currently do, 2) the amount we actually spend on transportation, and 3) the amount we would need to collect to maintain our current transportation network, respectively. As you can see, the SUV driver actually pays less under the "current revenue levels" system than under the baseline scenario, while the hybrid driver pays double. In the highest revenue system the Prius driver's tax bill increases almost four-fold, while the SUV pays slightly less than double. Everyone pays the same amount regardless of the gas mileage of their vehicle.

Clearly though, the costs imposed by a 16 mpg SUV are not the same as those of a 40 mpg hybrid (or a 100 mpg electric vehicle for that matter). Not only is the SUV producing much more pollution, carbon dioxide and otherwise, but due to its weight it's also more damaging to the road surface and more destructive to any people or property it crashes into. To ignore these differences would be blatantly unfair, and in many ways a worse solution than simply increasing the gas tax to appropriate levels. 

Large, low-mileage vehicles have a greater impact on our roads, our economy, and our health than do smaller, higher-mileage vehicles, and our federal policy should reflect that. If we want more equitable and financially solvent transportation funding, adopting a mileage fee is the way to go--but not at the cost of ignoring the real and significant costs of gasoline consumption. We can have both, and we should.

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