How Will Non-Fossil-Fuel Cars Pay Their Way?

© 2017 Steve Feinstein. All rights reserved.

Federal and state gasoline taxes provide a very substantial amount of revenue. In fiscal 2014, the Federal gasoline tax of 18.4 cents/gallon delivered over $25 billion dollars to Federal coffers. State gasoline taxes vary from a low of 12.25 cents/gal in AK to 43.88 cents/gal in NY and a whopping 58.20/gal in PA and are balanced as part of the overall state tax ‘pie’ against that state’s property, income, sales and excise taxes. Regardless, the states’ gasoline tax represents a substantial portion of every state budget. Revenues from these local fuel taxes are supposedly earmarked for road/bridge/infrastructure maintenance and improvements, although like all taxes—Federal or local— they simply go into the General Fund, to be dispersed as the Federal or local lawmakers see fit.

No one likes paying taxes, but the gasoline tax was a relatively straightforward, uncomplicated affair from the time state gasoline tax was instituted in 1919 in Oregon and in the Federal 1932 Revenue Act right through the present day. Cars ran on gasoline; taxes were imposed on gasoline to bring in revenue. Unpopular, perhaps, but straightforward and understandable in its implementation.

Now the United States is on the cusp of a revolutionary change in the means of personal and commercial ground-based transportation. In the near-term (25-50 years, at most, according to most experts), cars and trucks not powered by fossil fuels will become a very significant portion of the transportation fleet of the country.

As that happens, the obvious, most oft-discussed effects will be a paradigm shift in the way the United States conducts its foreign policy (no longer beholden to unstable, hostile foreign entities simply as a way to preserve our unfettered access to their crude oil reserves) and the manner in which the absence of oil-derived environmental damage and pollution no longer affect domestic American environmental policies and historical political alliances to anywhere near the same degree as they do now.

Less discussed—if discussed at all—is the dramatic structural change to the mechanism by which both Federal and state governments collect a very major portion of their respective revenue. With no change to the current system of tax collection, oil-based tax revenues will fall precipitously as fossil fuel-powered cars comprise an ever-smaller percentage of the nation’s fleet.

One vague proposal afoot in some states is an unspecified “user” tax, a way of charging drivers for the miles they’ve actually driven, as opposed to the amount of fossil fuel they consume. Currently, drivers of fossil fuel cars subsidize the upkeep of roads and bridges completely for non-fossil-fuel drivers. Those cars use no gasoline; hence their drivers pay no gasoline tax and get a figurative “free ride.”

But how would a miles-based user tax be implemented? Would it be a Federal tax, a State tax or some combination of both? How would the percentages/proportion of user tax vs. gasoline tax be determined? Ostensibly, the total tax on motor vehicles would need to be kept at least equal to what it is now, so states could develop a dependable budget with known revenue sources. What would be the timeframe for bringing mileage user taxes on line and could taxpayers be assured of a commensurate rolling back of gasoline taxes as non-fossil-fuel cars began to dominate?

From a logistical/practical standpoint, how would a mileage user tax be implemented? Would it be similar to the current “Easy Pass” system whereby electronic sensors read a specific car’s transponder and assess the correct fee? Would road tolls be separate from electric fuel-based “road use” taxes or all rolled into one? Would a given car’s transponder indicate that it was a gasoline or non-fossil-fuel vehicle and the toll sensor would automatically dole out the correct fee? An extraordinary increase in the number and location of sensors would be required in order to capture the actual mileage driven by all drivers, even on back roads and side streets. One can only imagine the complexity of such widespread sensor deployment and the opportunity for fraud, unfairness and outright inaccuracy.

What about the relationship between Federal and state “user” fees? Right now, gasoline has a very specific, easily-determined amount of Federal and state taxation: 18.4 cents/gal Federal and whatever amount that particular State charges its motorists. Would a mileage-based user fee work the same way?

Other questions remain: If each state and the federal Government implemented the sensors at a different pace—complete coverage in some states, spotty in others, a highly likely scenario in the short run—how could there be an accurate fee assessment from one state to another as motorists embark on inter-state excursions? If sensor-based fees are tied into credit or debit cards, and are not cash-based, how does such a system allow for delinquent payers, poor credit, and individuals who eschew the use of credit/debit cards altogether?

This entire situation poses huge legislative challenges, many of which are simply unknowable in advance. If a per-mile use tax is deemed to be the way to go, design and installation of that sensor network needs to be put into place now, as opposed to waiting until non-fossil-fuel cars become numerically significant. Given our government’s propensity for being after-the-fact reactive instead of proactively preventative, the probability is extremely high that a huge bureaucratic revenue boondoggle awaits, one that will make the otherwise agreeable transition to non-fossil-fuel-powered transportation quite painful indeed. One thing is for sure: The gasoline tax is soon going to be the wrong way to raise revenue for infrastructure maintenance.

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