Scrap the Federal Gas Tax In Favor Of a Voluntary One
Implicit in the price you pay at the pump is an opaque tax on every gallon of gas you buy – federal and state fuel taxes add to the final cost you pay to use your car for work and leisure. President Donald Trump has mentioned the possibility of an increased gas tax several times and has floated new rates ranging from 25 cents to 50 cents per gallon. He’s far from the only one to do so – calls to raise the tax have been part of the national conversation for years.
Outgoing House Transportation and Infrastructure Committee Chairman Rep. Bill Shuster (R-PA) has brought up the idea as a way to generate more infrastructure revenue and the Committee’s Ranking Member, Rep. Peter DeFazio (D-OR), introduced legislation to increase the gas tax. Even the U.S. Chamber of Commerce has lent its support for an increase. At the state level, California and Missouri will each have gas tax questions on the ballot in November, and New Jersey regulators are going to decide soon whether to raise the gas tax in the Garden State again. Improving the condition of our roadways will require trillions of dollars, so the question of how to fund our infrastructure priorities is a pertinent one.
The current federal tax rate of 18.4 cents per gallon, not tied to inflation, was set in 1993. The Revenue Act of 1932 created the first federal fuel tax, in a very different time in American history and a very different automotive landscape. Consistently improving fuel efficiency is one reason the gas tax isn’t what it used to be. According to the Bureau of Transportation Statistics within the U.S. Department of Transportation (DOT), the new vehicle fuel efficiency for passenger cars in 1993 (the year of the last federal fuel tax increase) was 28.4 mpg. In 2015, the last year for which there is data, that number had climbed to 37.2 mpg.
The gas tax provided $25.7 billion – or 63 percent of the DOT’s Federal Highway Trust Fund’s $41 billion in total excise tax revenue, according to Congressional Budget Office (CBO) estimates. The gas tax is a decreasing source of revenue for the Federal Highway Trust Fund and will be even less productive in the future. According to Bloomberg, the federal government generated $34.584 billion from gas taxes in 2015 – a steep decline from 1999’s high-water mark of $50.163 billion. The CBO predicts that gasoline tax revenues will continue to gradually decrease – reaching $21. 9 billion in 2027. Based on the increasing efficiency of conventional cars and the popularity of electric vehicles (EVs), gas tax revenue will continue to drop.
While it appears that fuel taxes are no longer the solution for long-term funding of our nation’s infrastructure priorities, some lawmakers continue to float increasing the federal fuel tax as a way to pad the coffers of the Highway Trust Fund.
However, an increased fuel tax is the wrong way to go. Consumers should not be forced to offset the tax’s long-term unsustainability and pay more due to the increasing efficiency of their cars, which are partially a product of the federal government’s Corporate Average Fuel Economy (CAFE) standards.
Given the long-term sustainability issues of the fuel tax, a mileage levy may be a more appropriate funding solution. A tax on vehicle miles traveled (VMT) could raise funds for our nation’s highways while serving as a replacement for the gas tax. The VMT tax is already in use in Oregon on a voluntary basis for all vehicles and in Illinois for heavy trucks. A VMT tax could also serve as a more equitable solution that ensures EV drivers pay to maintain the roads as well. While EVs still represent a very small share of the overall automotive market, sales have seen dramatic growth, from 17,435 EVs in 2011 to more than 150,000 EVs in 2016.
Despite earlier rhetoric, the Administration may not be attached to the idea of a fuel tax increase. February 2018’s Economic Report to the President praised Oregon as a “pioneer” and highlighted its program as a “promising alternative” to fuel taxes, signaling that it is open to other solutions, including a VMT. Oregon’s VMT system functions as a tax replacement rather than a tax increase. It offers rebates for state gas taxes that participants pay. Rather than functioning as an additional source of revenue, it is meant to replace the outmoded gas tax. This innovative solution may be the way forward to fund our infrastructure maintenance and repair projects.
U.S. Representative Sam Graves (R-MO), who may have his sights set on the Chairmanship of the House Transportation and Infrastructure Committee, is on board with a VMT tax. In a March op-ed, Graves said, “a modest VMT user fee on personal and commercial vehicles could raise enough funding to replace the gas tax and exceed our current infrastructure obligations. Those transformative infrastructure projects would then become more of a reality.”
The gas tax is an outmoded idea based on an outdated automotive landscape. Rather than raising fuel taxes and doubling down on an inefficient funding model which will continue to deteriorate, it would be better for consumers if federal and state governments would explore voluntary fuel-tax replacement programs like Oregon’s transformative initiative.