There’s been an increasing amount of talk about whether hybrids and electric cars have made the gas tax obsolete, and whether the time has come to switch to a different system of taxing drivers—like a vehicle miles traveled tax (VMT tax). In a new report, the Institute on Taxation and Economic Policy (ITEP) argues that the gas tax still has a lot of life left in it, and that lawmakers are setting themselves up for disappointment if they think switching to a flat, per-mile VMT tax is going to fix their transportation budget in the long-run.
As ITEP explains, our roads and bridges are crumbling mainly because federal and state gas tax rates are outdated. It’s true that fuel-efficiency gains have chipped away at the gas tax base by letting drivers travel further on each tank of gas, but so far that issue has been dwarfed by the impact of inevitable increases in construction costs. ITEP estimates that “for every $1 that fuel efficiency gains drained from the purchasing power of the nation’s transportation funds, inflation has taken a much larger $4.08.”
In other words, the biggest problem with the gas tax is also one that’s easy to fix: gas tax rates should gradually rise alongside inflation, just like many features of federal and state income tax law. Or as ITEP explains in a Huffington Post op-ed, “The fact that asphalt tends to become more expensive over time doesn't mean that we need to throw out the gas tax entirely. It only means that we shouldn't expect decades-old gas tax rates to keep pace with the cost of building and maintaining the nation's infrastructure.”
ITEP’s report also reminds readers that the funding problems created by flat tax rates are not unique to the gas tax. Oregon, for example, is in the process of launching a pilot project that will allow 5,000 volunteer drivers to exempt themselves from gas taxes in exchange for paying a VMT tax. But Oregon decided to set their experimental VMT tax rate at a flat 1.5 cents per mile—despite the fact that 1.5 cents is guaranteed to buy less asphalt and machinery in the future when those materials become more expensive. By 2025, Oregon’s VMT tax rate will likely need to rise to 1.89 cents per mile just to maintain the value it has today.
Before completely overhauling its system of taxing drivers, states like Oregon should join the growing list of states that plan ahead for inflation with a “variable-rate” gas tax where the tax rate can grow over time. And VMT tax proponents should be aware that this more sustainable “variable-rate” style tax rate will need to be carried over into any VMT tax that might eventually be enacted.
Read the report: