A DISCUSSION OFNavigating an Uncertain Future for US Roads
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As John Paul Helveston says in “Navigating an Uncertain Future for US Roads” (Issues, Fall 2017), highway finance in the United States is “broken and broke.” It is ill suited to dealing with the three emerging revolutions in passenger transportation—electrification, automation, and shared mobility. Although the current method of taxing gasoline (and diesel) is becoming increasingly anachronistic, it remains a very simple and highly efficient method for collecting revenue: less than 1% of the money taken in is spent on collection and administration.
Helveston’s preferred alternative, a tax on vehicle miles traveled (VMT), has many attractions. It relies on in-vehicle transponders and GPS to monitor congestion and location, and it can be fine-tuned to address equity, congestion management, and environmental goals. However, the adoption of VMT taxes will likely face political headwinds at least as strong as increased gas taxes will. In addition, it is much more expensive to administer, consuming over 6% of the revenue (equivalent to about $300 million per year at today’s tax rates).
As academics, we endorse Helveston’s enthusiasm for a VMT tax. But if all of the equity, congestion, and environmental benefits of VMT taxes are to be realized, their adoption would have to be done largely by local and state governments. The national government will not and should not determine how to tax single-occupant versus pooled vehicles (such as Lyft Line and Uberpool), roadway tolls, and the use of automated cars, to name just a few road taxation options. VMT taxes will and should be largely a local prerogative and action. Moreover, there are various other approaches that could face weaker political headwinds and be well suited to the task of financing roads and steering the three transportation revolutions to the public interest.
Perhaps the simplest option is to modify the gas tax to be an energy tax. The tax would be administered not just at the gas pump but, in the case of electricity, by the electric utility. This “energy equivalent” tax would impose a fee based on energy content and can take into account vehicle efficiency. The tax could be easily adjusted to meet local infrastructure needs. And it would be cheap to administer. It solves the challenges posed by the electric vehicle revolution.
Other less sophisticated approaches can address the challenges of congestion management and incentivize the use of pooled and automated vehicles (and disincentivize individually owned unshared automated cars). These include providing increased access to high-occupancy toll lanes, designating preferential parking for pooled cars (with higher rates for single-occupant vehicles), or even banning low-occupancy vehicles in certain areas. All of these approaches could be adjusted to ease the burden on disadvantaged travelers.
VMT fees are an elegant solution to the broken, anachronistic gas tax of today, and deserve support. But we should not let the good get in the way of the perfect. Let us continue to be creative and sensitive to local priorities. Let us encourage many flowers to bloom.
Professor and Director
Institute of Transportation Studies
University of California, Davis
Before considering the thesis of John Paul Helveston’s article, it’s useful to review some physics. Moving an object requires energy for overcoming inertia and friction. The amount of energy equals the quantity of work done, conditional on the efficiency of energy conversion. Transportation is work, and the energy used is proportional to the work done. Taxing energy means that bigger, heavier vehicles pay more than smaller, lighter vehicles, something a VMT tax doesn’t do until a system to discriminate among vehicles is added. It’s physics that makes fuel taxes, as Helveston notes, “nearly impossible to avoid and easy to collect.” And taxing energy creates an economic incentive to improve energy efficiency.
The problem with taxing vehicle energy use is political, not practical. The motor fuel taxation system is in trouble, but it’s been in the same predicament several times before and been repaired. Historically, the threats to motor fuel taxes have been (in order of importance) inflation, fuel economy, and, a distant third, alternative fuels. Motor fuel taxes are excise taxes, so inflation erodes their value, which would equally be a problem for a VMT tax. The solution is conceptually simple (index to inflation) but politically difficult. To address increasing fuel economy, an energy tax can also be indexed to the average energy efficiency of all vehicles on the road (also simple but politically challenging). And today, every alternative fuel is taxed except electricity.
To mitigate climate change, we must urgently improve energy efficiency and reduce carbon dioxide emissions, making this the wrong time to abolish a tax on transportation energy use. In 2016, transportation became the largest source of carbon dioxide emissions in the US economy. Today, fossil petroleum still supplies 92% of transportation’s energy, with most of the rest coming from corn-based ethanol, whose greenhouse gas emissions are, arguably, not a lot better. Because of this, vehicle energy taxes are effectively a tax on carbon emissions and thus a meaningful incentive to improve energy efficiency. VMT taxes could be structured to mimic these environmental benefits, but then tax rates would also need to be periodically adjusted to offset increased fuel economy.
Taxing VMT is better for addressing congestion and vehicles’ cost responsibility. Congestion pricing must be time- and place-specific, and will almost certainly be regressive. Although energy use increases linearly with mass, damage to pavements and bridges increases exponentially. Taxing heavy-duty vehicles’ VMT could work much better than the current system of ad hoc taxes. Why not add targeted VMT taxes to a universal vehicle energy use tax?
As Helveston notes, plug-in electric vehicles comprise less than 1% of new vehicle sales and an even smaller fraction of vehicles on the road. By 2025 electricity is likely to comprise no more than a few percent of vehicle energy use. In the meantime, we can tax electric vehicles. In the future, smart grids could tax their energy use. But we shouldn’t be in a hurry to abolish a useful tax on energy.
David L. Greene