Is Pay-Per-Mile Driven Better Than a Gas Tax? Experiment Gets Underway in California


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Next week California will launch an experiment to determine whether the state could repeal the gas tax and instead charge motorists for each mile they drive—essentially turning every public road into a toll road. 

But while a per-mile charge does have merit, California’s decision to expend so much effort studying this option while ignoring the preventable decline of its gas tax is problematic.

The Golden State’s per-mile experiment comes on the heels of a similar pilot program launched in Oregon last summer.  In both cases, officials’ main objective is to establish whether available technology—in the form of a smartphone app or standalone plug-in device—is reliable and secure enough to track distance traveled, and sometimes location, for a large number of vehicles.  California’s experiment is expected to include 5,000 volunteer drivers while Oregon’s currently has 1,018 vehicles enrolled.  Although smaller, Oregon’s experiment may be more ambitious: California’s experiment will last just nine months, but Oregon’s is slated to continue indefinitely.  And while California drivers will only make “simulated” payments, Oregon drivers can opt out of the state’s gasoline tax and choose to pay the per-mile charge in its place.

Putting aside concerns over technology and privacy, the basic idea behind this plan is sound.  Frequent drivers generate more wear-and-tear on the roads and should therefore generally pay more for roadway upkeep and expansion (low-income families unable to afford the charge are an exception but can be offered offsetting relief via a rebate or tax credit).

As things currently stand, this “user pays” objective is accomplished relatively well by existing taxes on gasoline, diesel, and other motor fuels.  Every state, as well as the federal government, currently levies an excise tax on these fuels and frequent drivers tend to pay more as a result.

In the long-term, however, it is likely that a sizeable share of drivers will own electric-powered vehicles that will be unaffected by the gas tax.  If and when this happens, a gas tax replacement will be necessary and a per-mile charge could become the cornerstone of transportation finance.  But with fully electric vehicles currently making up less than 1 percent of new vehicle sales, we’re not there yet.  While fuel economy is improving, the transportation funding shortfalls facing many states are not evidence that the current gas tax structure is on the verge of becoming obsolete.

Gas Tax Revenue Collections Are Falling Short, But There Is a Fix

Changes in vehicle fuel economy are only part of the reason gas tax revenues are falling short.  In fact, when we studied the causes of the gas tax’s decline in 2013, we found that more than three-fourths of the decline since the mid-1990s was unrelated to fuel economy improvements.  Instead, the main problem thus far has been stagnant tax rates failing to keep pace with predictable growth in construction and maintenance costs.  Typically, this has been because state and federal gas taxes are levied as fixed amounts per gallon and are adjusted only infrequently by lawmakers reluctant to vote for gas tax increases.

In California’s case, however, the problem is even worse.  Only July 1, the state will see its third gas tax rate cut in as many years, dropping the rate by almost 12 cents per gallon relative to where it stood in the summer of 2013.  This decline has come about because California’s gas tax is linked to the volatile price of fuel.  It has nothing to do with changes in vehicle fuel economy and could have been easily avoided with a restructuring of the formula used to calculate the state’s gas tax rate.

If lawmakers in California and elsewhere want to pursue a meaningful, sustainable strategy for funding transportation right now, a per-mile charge is not the answer.  For starters, as we’ve explored in earlier reports, per-mile charges are no better prepared for inflation than existing gas taxes.  Regardless of whether drivers are taxed per-mile or per-gallon, revenues will fall short in the long-term unless the tax rate is indexed to inflation.  Florida, Georgia, Maryland, Rhode Island, and Utah already index their gas tax rates, and unlike per-mile charges whose widespread implementation is still years away, inflation indexing can be implemented almost immediately.

Moreover, if lawmakers are concerned about the impact that fuel economy improvements are having on the gas tax, Georgia’s 2015 gas tax reforms offer a practical, implementable model that other states can follow.  Going forward, Georgia’s gas tax rate will be allowed to rise alongside improvements in average fuel economy.  For instance, if average fuel economy were to double from 20 to 40 miles per gallon, Georgia’s gas tax rate would double as well, leaving the average driver paying the same amount of tax per mile driven.

Of course, even these reforms will not be sufficient if many or most Americans eventually begin driving electric cars rather than gasoline-powered ones.  The experiments underway in California and Oregon are important steps toward preparing us for that future.  But we don’t have the luxury of planning for the future while ignoring the needs of the present.  To deal with the shortcomings that exist in our infrastructure right now, gas tax reform—not a per-mile charge—is the answer.

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