Why Motorists Should Pay by the Mile

Reconsidering a vehicle miles traveled tax

Today’s USA Today article provides a brief overview on the gradual decline of motor fuel taxes as the principal method of funding U.S. highways. It repeats a by-now familiar litany of reasons.

First, the gas tax is based on gallons of fuel consumed, rather than the number of miles driven. So as vehicles’ MPG has doubled over the past two decades, people go twice as far per gallon used-but highways still need at least as much maintenance. (And as MPG doubles again over the next 15 years, the problem will get much worse.)

Second, federal policy is actively promoting alternatives to petroleum-based mobility-hybrids, fuel cells, all-electric cars, etc. That means a growing fraction of vehicles will be paying little or nothing toward the cost of maintaining, expanding, and rebuilding our highways.

Third, except in a handful of states, gas taxes are not indexed for inflation, so when politicians go for decades without increasing the gas tax rate, the real value of the revenues declines. In a new Cato Institute paper, Randal O’Toole estimates that the real value of federal + state fuel taxes today (in terms of purchasing power) is one-third of what it was at the beginning of the Interstate highway era.

But there are several other reasons to switch from paying for highways based on petroleum use to paying based on road use. First, the fuel tax at the federal level and in many states has gradually shifted from being a pure user tax (i.e., paid only by highway users and spend solely to benefit highway users) to becoming a general-purpose public works tax spent on anything that is remotely related to “transportation”-bike paths, scenic trails, mass transit, billboard removal, transportation museums, etc. No wonder the average taxpayer rejects proposals to increase gas tax rates. The only thing she can be sure will happen if they go up is that she will pay more, but she can hardly count on any “investment” that will actually ease her congested commute.

Second, even when spent only on highways, fuel taxes result in a mass of cross-subsidies. Everyone pays the same rate per gallon, regardless of whether they drive exclusively on inexpensive-to-build two-lane country roads and neighborhood streets or drive mostly on multi-billion-dollar urban freeways and long-distance Interstate highways. A system of per-mile charges could be tied to specific highways (as tolls are today), so that those who use mega-project highways would pay accordingly.

Third, highways are the only major network utility that is paid for by this roundabout “user tax” rather than by direct payment for the amount of service you consume. For electricity, you pay for every kilowatt hour you use (and soon most of us will be paying more during peak periods when the system turns on very costly peak generators and less at other times when cheap baseload power can do the whole job). Likewise, most of us pay for water and sewer, natural gas, cable television, and telecoms services based on how much we use. Moreover, we pay the provider directly, in the form of monthly bills.

Thus, replacing fuel taxes is not just about ensuring adequate, sustainable funding for the highways we all depend on. It is also the key to transforming what is now a poorly managed, non-priced, government-run system into a 21st-century network utility.