Don’t Mess with Gas Taxes

Four East Coast states — Connecticut, Delaware, New Hampshire, and Pennsylvania — are considering a proposal to replace their gas taxes with “mileage-based user fees.” Oregon is already experimenting with a version of this approach. This strikes me as a terrible idea.

Gas taxes generate incentives for motorists to drive more fuel-efficient vehicles. In Pennsylvania, where the state fuel tax is 50.5 cents per gallon, the driver of a new Toyota Tundra (15 miles per gallon) pays a state gas tax of approximately 3.4 cents per mile, while the driver of a new Toyota Prius Eco (56 miles per gallon) pays a state gas tax of approximately 0.9 cents per mile. Buy a more fuel efficient vehicle, save on gas taxes (and, of course, on gas). Mileage-based user fees wipe away this incentive — the Tundra driver and the Prius driver pay the same amount per mile.

Not only are mileage-based user fees less eco-friendly than gas taxes, but they are also harder to enforce. There are somewhere around 115,000 gas stations in the United States and more than 210 million motorists. That means it’s a lot easier to monitor compliance at the gas stations than to keep track of miles travelled by all drivers on the road. Moreover, states generally collect gas taxes “at the rack” (when the gas is removed from a bulk terminal) or at the bulk distributor level, so it’s not necessary even to monitor individual stations. Which isn’t to say that compliance is perfect, but mileage-based user fees would create a whole new set of compliance complications.

So why would these four Eastern states and Oregon want to test out mileage-based user fees? Delaware’s secretary of transportation, Jennifer Cohan, says that gas taxes are unpopular, and that states can satisfy their transportation funding needs at current gas tax levels. “In general, it just leaves a bad taste in their mouth when you mention the words ‘gas tax,’” she tells the Washington Post.

But there is no evidence that a mileage-based tax is any more popular than a gas tax (indeed, the mileage-based version fares less well in public opinion surveys). Maybe the states are thinking that voters will react more positively to a “fee” rather than a “tax.” Yet if that’s the case, then why can’t we rebrand the gas tax as a “gallon-based user fee”? Play the mind game on voters without sacrificing the ecological benefits.

The primary problem with federal and state gas taxes is that they’re too low. And raising taxes is politically difficult. But getting people to install mileage trackers in their cars and then charging them based on the distance that they travel will be politically difficult too. Perhaps advocates of mileage-based user fees foresee that once these systems are in place, people will be more likely to accept fee hikes than tax hikes. I fear, though, that all we’ll see is higher emissions and lower compliance without any more revenue.