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May 24, 2005

Smarter Gas Tax III

Stateline.org has a good update on Oregon's project to test a smarter, by-the-mile alternative to the gas tax.  The Oregon project begins field testing in 20 vehicles in September and plans to expand to 280 cars next year.

(Tip of the hat to BlueOregon.)

UPDATE: Willamette Week beats on the per-mile pilot.

Posted by Alan Durning | Permalink


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My neighbor and I work at the same office. He has a Ford Excursion that barely gets 10 mpg. I have a VW TDI that gets over 50 mpg. Does this new plan mean we pay the same tax?

That's the way it works unless the mile tax is on top of, rather than instead of, the current fuel tax. Consumption taxes are supposed to reduce consumption, and in a world facing the irrevocable decline of petroleum-based fuel, that is A Good Thing!

Posted by: Jan Steinman | May 24, 2005 9:09:07 AM

This is such a half-baked idea I barely know where to begin. It must be one of those doomed-to-fail projects that keep trundling along simply because nobody wants to be the first to get squished trying to stop them.

Posted by: Mars Saxman | May 24, 2005 12:21:23 PM

So they don't charge when they drive outside Oregon, but how will they charge those from outside Oregon when they're driving in Oregon?

I also like how one of the problems with the gas tax may be that higher prices will cause people to drive less. That's going to be a problem with this tax too. In fact, this tax gives even more incentive to drive less than the gas tax does, but at least they can do the drive in an SUV.

Posted by: Eric L | May 24, 2005 1:08:49 PM

OK, call me dense, but I don't see why this is such a good idea.

Taxing by the mile would require GPS recorders in people's cars (not a solution I would accept lightly) and as Eric L points out, lets out-of-state drivers off scot free.

What is the problem that this new technology sets out to solve?
In this blog's original posting about this, Alan wrote, "Hybrid engines may before long create a crisis for state highway maintenance funding." http://cascadiascorecard.typepad.com/blog/2004/05/smarter_gas_tax.html

Here's a simpler solution: raise the per-gallon gas tax as the fuel economy of the fleet increases. The average individual (whose vehicles keep step with the rest of the fleet as its efficiency increases) would see no increase in tax payments. As Amory Lovins pointed out with regard to utility investments in efficiency, people don't pay rates, they pay bills. If they consume fewer kilowatt-hours (or gallons) but pay a higher rate (or per-gallon tax), they can wind up paying the same number of dollars, which after all is what they care about.

Per-mile taxes, in any case, are a crude instrument to address congestion: they aren't time-sensitive. Other solutions advocated in these pages, such as HOT lanes, hold more promise in this arena.

Posted by: Seth Zuckerman | May 24, 2005 2:15:40 PM

Good points all.

But I still think by-the-mile taxes are ultimately a better option than by-the-gallon ones.

Some of the nonmarket costs of driving are proportional to fuel consumption: CO2 emissions and oil dependency, especially.

But others are more closely proportional to miles driven: several types of local air pollutants (and especially particulates, a large portion of of which come off of break pads, tires, and the like); accident risk -- which still kills far more people than firearms or illegal drugs in Cascadia; noise pollution; water pollution (some of which is deposition from the air and more of which is runnoff from roads and parking lots); the "barrier effect" that traffic imposes on neighborhoods and, especially, pedestrians. Todd Litman at http://www.vtpi.org has amassed an extraordinary documentation of the various external costs of driving. And he's convinced me that miles traveled is an even more critical gauge for sustainability than gallons burned.

But that may be a moot point.

Many forms of electronic tax collection have the potential to be MUCH more finely tuned to these various costs than does the per-gallon fuel tax. The per-gallon tax is necessarily blunt. A per-mile tax can be quite sophisticated.

A smart gas tax like the one under development in Oregon can be a stepping stone to a comprehensive solution to congestion, through comprehensive road-use charging on all roads -- with absolutely stupendous economic benefits.

It can be turned into a gas guzzler tax that makes a real difference: by varying the per-mile rate based on the fuel economy of the vehicle.

It can be turned into an air-pollution tax, by varying the per-mile rate based on emissions-inspection ratings.

I wouldn't be unhappy at all with Seth's proposal. But ideally, I'd like to see a comprehensive tax on greenhouse gases that would dramatically boost fuel prices, not just for gasoline but for all fossil fuels.

The gas tax, meanwhile, would give way to multirate, smart road-user charge, along the lines I've been sketching here.

That's why I get excited about pilot projects such as this one.

Now, the big and legitimate fear about electronic fee collection is privacy. This is a real and worrisome question. It's not an issue for opt-in systems such as Pay as you drive insurance. Nor is it an issue for many by-the-mile approaches, which simply record mileage and not location.

But comprehensive, eyes-in-the-sky, GPS-based could be used by Big Brother for nefarious ends. That's why I favor systems where the computation is done onboard each vehicle, not by a central computer. This makes cheating easier and therefore more common. But an appropriate system of auditing vehicles for compliance will keep the overwhelming majority of vehicles honest.

One other point here: a system where the location of every vehicle is recorded in a central database, while not something I believe is necessary or even advisable, is less scary to me than it seems to be to many others. Everyone who uses a credit card leaves behind him or her a record of his or her actions that is extremely revealing and personal. Everyone who surfs the Internet leaves a similar trail. Yet it's the idea of the black box under the hood that most drives privacy advocates crazy.

More to say, but no time to say it in . . .

Posted by: Alan Durning | May 24, 2005 4:09:21 PM

Fascinating discussion, Alan.

Granted that much of the cost of driving is currently not translated into the cash price of that activity, we're kicking around two fairly crude ways of getting consumers to internalize those costs -- per mile, or per gallon. Instead, consider internalizing those externalities one at a time.

For instance, slap a hefty deposit on motor oil, which you get back when you return it to the recycling center. This would send a signal to motorists to prevent leaks. If (some) states can do it for bottles and cans, why not for something even more destructive?

Worried about the traffic's unfriendliness to pedestrians? A congestion fee a la the charge to enter London's downtown core could be the answer.

In general, I suspect these sort of fees will gain more public acceptance if they are tied to tangible impacts, instead of rolled into one seemingly arbitrary mileage tax.

Posted by: Seth Zuckerman | May 25, 2005 10:27:20 AM

I like that approach, Seth. I support it. A GHG tax on fuel. Product stewardship covenants for motor oil, car batteries, car tires, even cars themselves. And, taking each externality separately, we can find ways to improve the price signals. That's why I'll talk for hours at the least provocation on subjects such as pay-as-you-drive auto insurance, reform of parking regulations, innovations in taxi regulation, and -- of course -- congestion pricing.

But many, many of these externalities turn out to be vastly easier to price using information technology.

Take just congestion pricing, for example:

As I've argued before, site-by-site congestion charging is a terribly slow road to travel. HOT lanes must be proposed, designed, funded, and fought for mile by mile. The London-style center-city charge is an even tougher sell and covers, at best, a tiny share of any metro area. With 200,000 miles of streets and highways in Cascadia, and multi-centered metropolitan areas, that looks like a century of slow, tedious work, even while congestion gets worse.

That's why I'm so interested in looking for bold, new, even risky approaches: I'm hoping for a new, systemic approach to congestion pricing.

Posted by: Alan Durning | May 25, 2005 11:42:28 AM

Alan, I've been having trouble for the past two days linking up to 2 of the hyperlinks in the first sentence of this blog.
Is it possible to fix those tricky links connecting "Oregon's" "project"?
Or do I need a smarter computer to read about "Smarter Gas Tax"?

Posted by: Michelle Parker | May 25, 2005 6:47:49 PM

Alan, this is a nice beginning, but the poor who drive all over the place because they can only afford to live in a few places won't be affected in a good way by this.

It certainly is a good place to get to, but until people stop capitalizing in land rents, this is a tax on the lower incomes.

And I like the tangible impacts ideas in Seth's post.


Posted by: Dano | May 25, 2005 9:40:07 PM

Michelle -- Links fixed. Thanks.

Dano -- Regressivity is an important consideration . . . but:

Gas tax is very regressive already, so the question is whether a smart gas tax is better or worse than a dumb one. I'm guessing better, that is, less regressive.

For starters, contrary to your implication, miles driven increase with family income. Low-income drivers drive less than high-income drivers.

Some low-income drivers certainly have to cover long distances, in part because of high housing costs close to the urban center. But commute trips account for only 20-25 percent of miles driven. And low-income households are NOT concentrated in the outer suburbs of any metropolitan area I've ever studied. They're concentrated in urban and inner-ring suburbs.

Also, low-income drivers are substantially less likely to drive congested roads at peak periods than middle- and high-income drivers. So congestion pricing would hit them less hard.

One way to make a smart gas tax easier on low-income households would be to charge for road use based on an "ascending block" price structure. For basic road-use charges (not the additional per-mile fees that we supposed above, such as congestion charges and the like), the first 2,500 miles per year would cost less per mile than the next 2,500 miles, which would cost less than the next, and so on. This price structure is commonly used by electric utilities and water districts, as a way to encourage efficiency without unduly penalizing low-income households.

All of which is, to me, good news, since we'll be waiting forever if we have to wait for transportation costs to stop being capitalized in land values. . .

But, while we're on the subject of land values, a shift of the property tax off of building values and onto land would squelch land speculation and turbocharge growth management. It would also be strongly progressive, compensating for regressivity in fees on driving.

Posted by: Alan Durning | May 26, 2005 7:48:31 AM


can you explain the details of such a property tax shift from buildings to land? would it be revenue neutral? if i have an average house with an oversized (double) lot, in a residential zone, how would my rates change?
(current assessed land = 110k, building = 185,000, rate ~= 1.4%).

just curious... reminds me of henry george.

OK, oddly enough i just chekced assed land values, and though my lots is .21 acres and assessed at 110k, a neighboring house is .1 acres and assessed at 90k. so i guess a long sknny lot isn't too valuable compared to a short skinny one.

Posted by: colorless green ideas | May 26, 2005 3:38:42 PM

From stateline.org article:
When drivers fill up, specially equipped gas pumps will read the mileage and charge 1.2 cents for every mile driven instead of the state's tax of 24 cents per gallon of gas.

What they are describing is a gas guzzler subsidy.

The nice thing about Portland is that it is so close to Washington. Let me look into my crystal ball and predict that there will be a great many vehicles with Washington plates registered at mailboxes in Vancouver. The government GPS box alone would be enough to tempt me in that direction.

If there is an elaborate taxing algorythm, look for hackers to be filling up their SUV while their box electronically tells the pump that they drove 6 miles in their Prius in traffic jams. Look for those boxes to move from the hacker community to the organized crime community within less than a month.

The mental processes of anybody who thinks that this by-the-mile tax is a good idea ought to be studied as a modern wonder. This is such a spectacularly bad idea that it ranks up there with sticking a fork into the electric socket or trying to stop a fan with your tongue.

Posted by: Mark in Texas | May 27, 2005 1:08:41 PM

There are some really good ideas being proposed here!

I guess I, too, am a little wary of a per-mile tax if it has the potential of being misused by computer-hackers and/or the government.

Here's an idea that might be easier (and therefore smarter) to implement:

How about placing a (ballpark figure of) $1 gas tax on gas-sippers by the OUNCE, and on gas-guzzlers by the gallon?

All of the residuals from this tax will go instantly into creating decent Mass Rapid Transit infrastructure AND bicycle pathways, so that everyone from every income bracket can start benefitting from these environmentally friendly (and therefore "people friendly") transport modes as soon as possible.

Posted by: Michelle Parker | May 28, 2005 6:51:55 PM

Er... couldn't we tax brake pads, tires, and engine oil directly?

Posted by: clew | Jun 8, 2005 9:50:45 AM