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February 28, 2006

Drivers Wanted

There's been a bunch of comment in the blogosphere today about hiking gas taxes -- with the rough consensus that it's ok environmental policy, tough on the poor, and politically risky (though perhaps not quite as unthinkable as it once was). 

So it's interesting to note that Oregon -- often considered a policy innovator among US states -- is in the middle of an experiment that could eventually lead to a repeal of the state gas tax.

Oregon's transportation department is recruiting volunteers to test a system that would charge people based on how far they drive, not on how much gas they use. The trial will test two rate structures -- some participants will pay a flat rate of 1.2 cents per mile, while others will pay a variable rate depending on whether they're driving during rush hour; a control group would continue to pay normal gas taxes. (See here for details, or if you're interested in volunteering.)

The state is interested in this sort of approach for a bunch of reasons, but if I read things correctly, they're mostly worried that gas tax revenues are poised to fall, perhaps significantly, over the upcoming years.

Here's the issue: if gas prices remain relatively high, or keep rising over time, economists project a gradual per-capita decline in gas consumption, as people replace their cars with more efficient ones. And if cars keep getting more and more fuel efficient, then total gas revenues could actually fall, even as the demands on the road network increase. Ultimately, states may be forced to choose between continual gas tax hikes and persistent funding shortfalls for roads -- both of which are bound to make lots of people unhappy. Under a pay-by-the-mile system, however, transportation funding would be keyed to how much people actually drive -- so the state would still keep up its funding no matter how efficient the cars get.

Obviously, shifting from gas taxes to mileage-based taxes has some signficant downsides. First, the gas tax does create a slight incentive for fuel-efficient cars; getting rid of it could put Hummers on a more even footing with hybrids. And second, it's not entirely clear that a falloff in highway funding would be a bad thing. Obviously, most drivers want the roads maintained in good working order; but, in my mind at least, a lot of highway spending seems like it's pretty wasteful.

That said, we've been pretty interested in the pay by the mile idea, despite the potential downsides. Fully developed, the technology could facilitate two innovations that could be far more powerful at promoting fuel conservation than the exisiting gas tax. First, the same technology used to track mileage for taxing purposes could also be used for a more comprehensive congestion pricing system -- which could simultaneously clear up congestion, reduce driving, and promote bus ridership by keeping streets and highways flowing. And second, it could pave the way for Pay-As-You-Drive car insurance, which would have the same effect on driving overall as roughly doubling the cost of gas. 

If you want to get really fancy, you could even fine tune the pay-by-the-mile taxes, to increase fees for cars with the worst pollution or CO2 emissions, the most road space (SUVs require longer stopping distances, and tend to use up a little more space on streets and highways), or the worst safety records.

Of course, pay-by-the-mile taxes suffer from one huge drawback: they're much more complicated than gas taxes, not just because they require special technology but also because a properly "fine tuned" system -- one that accounts for all the different externalities of driving, ranging from pollution to congestion -- could be pretty incomprehensible to the average driver. And mileage-based taxes would be vulnerable to all sorts of political shenanigans, as car manufacturers would jockey for special exemptions or rates for certain kinds of vehicles. All of which means that, even though I'm very excited by the tests, I'm not yet ready to support the idea -- and certainly not until we see how drivers really react to the system.

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Doesn't $.012/mile give me an incentive to buy an SUV? My Honda Civic gets 34 mpg which would make my tax/gallon $.40! Right now it's only $.24. Any vehicle that gets better than 20 mpg would see a tax increase while the SUV-class would see yet another tax break.

I'm hardly a right wing reactionary, but this plan blows.

Posted by: Chris | Mar 1, 2006 7:33:19 PM

Let's clear one misconception out of the way. Classified per-odometer-mile premiums for auto insurance require only the odometer for accurate measurement of miles driven - no razzmatazz black box technology. Customers buy miles in advance and top up as needed. See FAQ at www.centspermilenow.org for details.

Posted by: Twiss Butler | Mar 1, 2006 9:01:23 PM

One way to stop the political damage of continually raising the gas tax to counter the effect inflation has on the amount of road work that you can buy is to simply make the gas tax a percentage of the gas price rather than a fixed fee. As energy prices go up relative to the value of the US$, so will the revenue needed to maintain the road system. The threat to Oregan's roads funds isn't people buying environmentally friendly cars, its the continuous and unrelenting debasement of our currency.

Posted by: Jay | Mar 2, 2006 9:53:40 AM

Vehicles should be taxed based on their negative externalities on society and the resources they use. Specifically, they should be taxed on road wear (based on weight x miles driven) plus pollution (based on emissions results x miles driven). It would be easiest to calculate this at the time of emissions testing, but ideally a per-mile tax rate could be determined each car which is then charged at the pump.

Posted by: Rodney Rutherford | Mar 2, 2006 12:56:03 PM

I agree with Rodney. While the mileage tax has heavy road users paying for road upkeep, externalities need to be factored in. A Suburban or Yukon will put more wear and tear on the roads than compact sedans and emit more tons of GHG/yr. And is it equitable in terms of financial class? There are plenty of middle class folks who work hard to save up for a hybrid sedan to help out the environment. Would they now feel more impact driving cross-state to visit friends and relatives than the more well to do in the Suburban? I'm also curious to know how well a mileage tax could be collected. Currently, if you pump gas, the merchant will collect the tax rather effectively. If instead you put a gizmo in your car that phones home your mileage, you send out more EM radiation, there's more ways for you to be tracked, and lots of room for the unscrupulous to hack their own gizmos to avoid the tax. Also, if you live in Vancouver and drive Portland roads non-stop, no revenue for Oregon there. And if you live in Portland or Medford, you may decide to do your roadtrips out of state. Again, less revenue for Oregon roads. On balance, it seems gas tax is more collectable, more equitable, and better for the environment.

Posted by: julian | Mar 3, 2006 3:54:06 PM