Gas v. Mileage Tax

Earlier this week, the Kansas City Star had an article about a test project being done at the University of Iowa to examine the practicality of having a vehicle tax based on the number of miles actually driven:

The year is 2020 and the gasoline tax is history. In its place you get a monthly tax bill based on each mile you drove — tracked by a Global Positioning System device in your car and uploaded to a billing center.

As this introduction to the article suggests, the setup being examined would equip each vehicle with a built-in GPS receiver, coupled to some sort of data recording and telemetry device.  This would create a log of the vehicle’s movements over time, and send the data to some central collection point so that bills based on mileage traveled could be calculated and sent out.

One of the stated motivations for exploring the feasibility of this kind of taxation is the wish to ensure that there is enough money to pay for necessary maintenance to roads and other transportation infrastructure.  In the case of highway mantenance, we have an existing federal gasoline tax, whose receipts go into the Highway Trust Fund, which is used to pay for highway construction and maintenance.   Since this is already in place, and since putting a new system in place would require a non-trivial investment, it is natural to ask if the new system offers any additional benefits.

I can think of a few objectives that we might want to aim for when designing taxation policy related to surface transportation:

  • Increase revenue to pay for better maintenance
  • Provide an incentive for higher energy efficiency — more miles per gallon [MPG]
  • Provide an incentive to develop alternative power technologies (e.g., electric cars)
  • Provide an incentive to reduce emissions and carbon footprint.

My purpose in writing is not to defend these particular objectives, but to see how well they match two alternatives: an increase in the rate of the existing gas tax (which has not been increased since 1993, and is very low in comparison to that elsewhere in the world), or a tax based on mileage.

It seems to me that the only objective that is satisfied as well by a mileage tax as by an increase in the gas tax is increasing revenue.  A mileage tax, more or less by definition, cannot provide any incentive to increase fuel economy.  Replacing the gas tax with a mileage tax would destroy some existing incentives to use hybrid or electric vehicles, since they would then have no relative advantage.  I’ve summarized what I think the effects would be in the following table:

Objective Higher Gas Tax Mileage Tax
Increase revenue + +
Higher MPG +
Alternative Tech +
Lower emissions + ?

There is, perhaps, an argument to be made that a mileage tax is in some sense fairer: after all, electric cars would use the roads, too, and they shouldn’t escape paying something to support the infrastructure.  And it is true that a mileage tax would be directly related to road usage.  At most, though, it seems to me that this is an argument for having a mileage or other tax to supplement the gas tax, not replace it.  (If we were to establish a carbon tax, then this issue would to some extent cease to exist, since the tax would have to be paid on the generation of electricity, for example.)

I think the principal motivation may be a political one: a mileage tax is new, but it is not a “tax increase”.  The article suggests that there is something to this:

Besides the technological advances making such a tax possible, the idea is getting a hard push from a growing number of transportation experts and officials. That is because the traditional by-the-gallon fuel tax, struggling to keep up with road building and maintenance demands, could fall even farther behind as vehicles’ gas mileage rises and more alternative-fuel vehicles come on line.

Some have suggested a more complicated mileage tax system, where charges would be based on a sliding scale, perhaps taking vehicle efficiency, size, route, and time-of-day traveled into account.  This would of course require a bigger up-front investment, and it is not hard to imagine it degenerating in the direction of the Internal Revenue Code, becoming so full of exemptions and special provisions that no one understands it.

A system that records all this data also raises some serious concerns about privacy.  In order to be able to demonstrate that your tax bill was accurate, the taxing authority would have to maintain a data base that, essentially, tracked every movement of your vehicle.  Anyone with access to that data base could learn an awful lot about you.  And I think you should assume that “anyone” in the previous sentence does potentially include anyone; although the system and its data base would doubtless be protected, the incentive to hack into it would be very high, both in order to harvest information, and in order to cheat on your taxes.  (As Bruce Schneier has said many times, putting in place the infrastructure of a police state is not good civic hygiene.)   The motivation for, and possibility of, cheating should not be underestimated: remember that the in-vehicle GPS and data recording device is an essential part of the system.

But look on the bright side: once the system is hacked, so that anyone can lower his tax bill, the politicians can crow about how the tax has reduced the number of miles driven.

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