GAO: Mileage Fee Could Be More “Equitable and Efficient” Than Gas Tax

How drivers' taxes would change under a VMT system, based on three scenarios for three different revenue targets. Image: GAO

While governors debate raising (or eliminating) their states’ gas taxes, buzz is building about mileage-based fees, or a vehicle-miles-traveled charge. A House provision to ban U.S. DOT from studying such a fee has gone away (along with its sponsor), while Rep. Earl Blumenauer is trying to get the Treasury Department to look into how it could work. And a new report from the Government Accountability Office says that would be a good idea.

The House Transportation Appropriations Subcommittee requested the report. Subcommittee Chair Tom Latham is dead-set against a VMT fee, as many rural representatives are, fearing that long distances between destinations in the heartland will end up costing them a lot if charged by the mile. Latham should take a look at the GAO’s conclusion: “Mileage-­based user fee initiatives in the United States and abroad show that such fees can lead to more equitable and efficient use of roadways by charging drivers based on their actual road use and by providing pricing incentives to reduce road use.”

That’s the first line of the GAO’s 81-page report, and it’s a ringing endorsement of the idea of a mileage-based fee, implying that it is not just a way to collect revenue but also an effective mechanism to make better use of existing roads.

The impetus behind the desire to study VMT fees, of course, is the fact that current receipts don’t match spending levels (which, in turn, don’t match the need) due to the fact that the gas tax hasn’t been raised in 20 years, and fuel-efficient vehicles are consuming less gas. While the gas tax was equal to 17 percent of the cost of a gallon of gas when it was set at its current level in 1993, it is now only 5 percent. The GAO noted that funding for surface transportation is on the agency’s “High ­Risk List.”

But it’s not all about revenues. The GAO thinks that a VMT fee would also reduce congestion and lead to more efficient roadway use, which in turn could lead to fewer calls for very expensive road-building projects:

For example, mileage fees and other forms of road pricing such as tolling send clear price signals to road users, and provide incentives to drivers to consider alternatives such as public transit or carpooling which can reduce congestion, vehicle emissions, and overall spending on fossil fuels. The Congressional Budget Office (CBO) reported that most drivers currently pay much less than the full cost of their highway use, and that mileage fees could provide a better incentive for efficient highway use than fuel taxes do because the majority of highway costs are related to miles driven. In addition, we have reported that if those who benefit from a program do not bear the full social cost of the service, they may seek to have the government provide more of the service than is economically efficient.

Several states have tested VMT fees, and the GAO drew on their findings, as well as those of other countries that have implemented similar fees. The agency identified three distinct systems, and each comes with its own drawbacks (political or otherwise): those involving GPS tracking attract howls of protest from people fearing invasion of privacy; a pay-at-the-pump system, which still leaves out electric vehicles that never need to visit a pump; and a prepaid manual system based on odometer readings with a high potential for fraud and evasion.

While this last option is the least sophisticated, it’s also the only one the GAO studied with a real-world national example that includes passenger vehicles. In New Zealand, the program has been operational for 35 years.

The GAO found that, if privacy concerns could be overcome, a GPS-based system was the most versatile, since it could be configured to charge variable rates based on place and time of day.

A major drawback to a VMT fee, no matter what method it uses to track mileage, is that implementation will cost a lot more than fuel tax collection and could eat up the additional revenues collected. Installing on-­board units in 230 million U.S. passenger vehicles could cost in the range of roughly 8 percent to 33 percent of the revenues generated over a 20-­year period, the GAO estimates. In Germany, the GPS units cost about $240 each, not including installation.

“Similarly, retrofitting thousands of gas stations to support a pay-at­-the-pump system would be costly and challenging,” the GAO states. “For example, the Oregon and Nevada pay-­at-the-pump pilot programs cited difficulties finding and recruiting gas stations to participate in their pilot programs.” In the 12-state study, nearly a quarter of participants had trouble with their on-board units – a rate that would be “disastrous” in a real nationwide rollout.

Mileage fees for commercial trucks are easier and less costly to implement and less controversial than for passenger vehicles, and they would go a long way toward getting trucks to pay for the damage they cause to roads. FHWA estimates that heavy trucks only pay for about half the costs they create in terms of wear and tear, though the report notes the need for updated estimates on the amount of damage caused by these vehicles.

Germany charges heavy trucks to drive on the autobahn. About half are equipped with on-board units; the rest pay manually. Not only did it raise revenues, it “achieved its second goal of creating incentives for operators to invest in lower emission vehicles, which has resulted in reduced emissions across the German and European trucking fleet.” Since fee rates were variable based on the truck’s emission class, number of axles, and distance traveled, trucking companies started investing in the lower-emission trucks that are charged less money. “In 2005, the lowest emission commercial truck classes… comprised less than 1 percent of the commercial trucking fleet. By the end of 2011, those classes comprised about 70 percent of the commercial truck fleet,” reported the GAO.

The GAO looked at where the VMT fee would have to be set to attain three different revenue targets. The first would match current gas tax receipts (though the goal of any new program would, logically, be to supercede those), which came out to an average charge of 0.9 cents-per-mile for passenger vehicles and 3.2 cents-per-mile for commercial trucks. The second option would match current spending (though current spending is based roughly on receipts), which would require an average passenger car fee of 1.5 cents-per-mile, 5.4 for trucks. And the third scenario would raise what the GAO estimates is needed to “maintain existing conditions and performance,” through an average fee of 2.2 cents-per-mile for cars, 8.4 for trucks.

Three scenarios for a mileage-based user fee. Source: GAO

VMT models do run the risk of eliminating one incentive for driving a more fuel-efficient car. James Whitty, who manages the Oregon DOT office in charge of that state’s VMT fee pilot, said he thinks they’ll never replace the gas tax with a mileage fee for all vehicles. “Vehicles below the midpoint, about 20 miles per gallon, are already paying a load of gas tax,” he told Streetsblog earlier this year. “It just doesn’t make economic sense to include them in this.” Plus, he said, drivers of fuel-efficient cars would revolt if a VMT system ended up providing a financial break for drivers of inefficient vehicles. Indeed, even in the third scenario, with the highest VMT fees, SUV drivers would only pay 88 percent more than they pay now. Hybrid drivers would pay 369 percent more.

Still, under any envisioned system, the fee would remain a small percentage of the total cost of gas – far lower than in many other countries.

Filed Under: VMT

  • carma

    Connecticut is now looking at retolling i-95 i-84.  Im guessing a high speed ez-pass type of system.
    id rather have revenue through tolling roads and vehicle use if revenue is a problem.  drive less, pay less.  

  • Garrett

    Nice idea, but it’d be a hard sell in the U.S., where people would equate this with a loss of privacy.

  • Vincent il Rosso

     A couple of solutions:
    1. Initially make tax by VMT optional in place of gas taxes. SUV drivers will be better off installing a GPS unit and going to service stations with VMT-enabled pumps. This provides incentives for both to adopt the technology.
    2. Add in vehicle weight class to the VMT tax calculation. In general, lighter cars have better emissions and do less damage to the road. This also balances the fairness of a VMT tax so economy car owners aren’t getting screwed.
    3. A GPS unit doesn’t need to track where you have been, just where you are for each mile. The units should simply have a counter of “miles in taxable area.” This way there is no record of where I was or when I was there because it doesn’t matter.

  • Anonymous

    I’d like more details about the “prepaid manual system based on odometer readings with a high potential for fraud and evasion.”  Were its failing due to a self-reporting aspect?

    California makes smog inspection part of the bi-annual registration process. Couldn’t the state make an odometer reading part of an annual/biannual inspection?

  • steve

    The simple solution is to just increase the fuel tax.  Switching to a VMT is just an unnecessary hassle and would give people an incentive to buy gas guzzling SUVs which already contribute disproportionately to the wear and tear of roads.

  • Joe R.

    This only makes sense if you charge by VMT adjusted by the weight of the vehicle to the fourth power. That would make vehicles pay in direct proportion to the wear and tear they cause. For example, if a 2000 pound econobox pays one cent per mile, a 4000 pound sedan would pay 16 cents, a 3-ton SUV 81 cents, and an 80,000 pound semi $25,600. This would essentially make it cost prohibitive to operate large vehicles. You could of course have exceptions for buses or emergency vehicles. The idea here is if you get the cargo which goes on these huge trucks to shift to rail considerably less money would be spent on road maintenance. 

  • Richard Mlynarik

    Please, cut it out.

    This is insane.

    You’re simply shilling here for the military contractors who will be the only ones “qualified” to bid on this multi hundred billion dollar guaranteed failure.  Plus, as a special extra super bonus, watching the planet burn for another couple decades instead of taxing the crap out of all carbon emissions.

    Sadly enough living “car-free in a transit-oriented and bike-friendly neighborhood” is apparently no royal route to being able to do basic financial arithmetic, understanding the nature of  rent-seeking contractor-driven mega-projects, or understanding the real issue (which isn’t a few more pennies for streetcars in some US urbanization or another.)

  • carma

    @2555783a6f62598b6aadd2d882a4830f:disqus 
    In theory, what you say makes sense.  im pretty sure you are simply exaggerating the $25600 for semis….

  • Taxing motor fuel is an efficient and fair tax, and it reasonably accounts for externalities such as pollution and road damage, and the collection infrastructure is already in place.  Criticism that it is bypassed by electric car users suggests a technical solution which would involve separate metering of electricity to charge cars.  That is easier and less invasive that continuously monitoring the number of miles driven, and it preserves a system of incentives for driving more efficient vehicles.  Driving people off the road with high user fees is a very regressive tax policy.  Don’t imagine this is replacement tax, it will be a new tax.  Gasoline is already highly taxed, only the tax is collected privately in the form of economic rents extracted by oil companies.

  • A GPS-based VMT continues to be a horrible idea, and the other two aren’t that much better.  We already have a good proxy for the VMT (the gas tax) which also happens to address the externality of air pollution.   Raising the existing tax, tolling more roads, and instituting congestion charges in the areas where transit is good (Manhattan, maybe a few other downtown areas) are the ways we should raise revenue for now.  When electric cars reach 10 or 15% of the total fleet (its currently about 0.03% of the existing fleet), we can look at the issue again.  Hopefully the country will be a little more sane by then.

  • Anonymous

    It’s all to punish people trying to use less gas, and to reward those who insist on driving big heavy wasteful motor yachts….
    A truly bad idea.

  • Anonymous

    For the life of me, I can’t understand why the VMT gets so much traction in the progressive community.

    Lots of good comments here already explaining that the gas tax is a de facto VMT and carbon tax.

    For its part, I would love for the GAO to explain how a system that charges an Escalade the same as a Volt is “equitable”, or how a system that will cost 33% of its revenues to implement is “efficient” relative to a gas tax hike that would cost 0% of its revenues, or how a VMT discourages road use but a gas tax hike does not. Simply ridiculous.

    But if you are a progressive, and you like walking, biking, and transit, the most important thing is that you are totally misguided for two reasons:
    (1) you are falling into the “user fee” framework trap. The logical next step in the argument is that transit riders should pay user fees to cover the full cost of transit, cyclists should pay user fees to cover the full cost of installing bike lanes and building bike ways, etc. If you don’t see this coming, you are a fool.
    (2) the only reason a VMT is even on the table is that the GOP has decided that a gas tax hike is out of the question. So, you’re telling me that your impression of boneheaded GOP politicians is that they’ll oppose a gas tax hike, but they’re perfectly happy to go tell the Agenda 21 crowd that they all have to install government-monitored GPS units in their cars? That’s just insane.

    The VMT is a red herring that is being used to distract attention from the need to raise the gas tax. The GOP will let the VMT be studied and then cite privacy and implementation costs as reasons it’s impractical. Then they’ll throw their hands up and insist on funding highways out of other revenues. It’s a lock. You can book it right now.

  • First off, we should tax all greenhouse gasses at 10 cents per pound spewed into the atmosphere. (For gasoline, this would run about $1.70 a gallon.)  But this money shouldn’t be used to pay for roads, it should be used to decrease greehouse gas emissions as fast as possible. (How? Build out solar PV and wind to generate electricity at 10 times our current rate, shut down coal power plants, upgrade our national electrical grid to transmit and balance energy loads, motivate (through tax breaks) households, commercial business and industry to become twice as energy efficient, fund electrified transit in communities, fund electrified passenger rail between communities, and create significant tax incentives to move 90% of our freight by rail.)

    How to pay for the roads? Toll the federal interstate system so that it is totally self-sufficient. As Joe R notes below, the tolls have to be proportional to vehicle weight.  For the rest of roads, leave it up to states, counties and local jurisdictions to raise the taxes to pay for these however they want–gas tax, VMT, from the general fund, whatever. If they feel roads are important, they can figure out how to pay for them. The added bonus is if CO2 and other greenhouse gases were taxed at 10 cents a pound, all roads would suddenly become far cheaper to maintain.

  • Zachb

    VMT is a red herring used by opponents of gas tax. They want to keep talking nonsense until the gas tax debate fizzles out again.

  • Joe R.

    Electric cars are one of the reasons often given for transitioning to a VMT but this doesn’t hold up under scruntiny. The purpose of either a VMT or a gas tax is to pay for road maintenence and/or externalities. Let’s start with the first one-road maintenence. The idea that the gas tax pays for road mainenence is only applicable to some limited access highways, notably Interstates. Even then, the existing gas tax doesn’t even come close to covering this expense. As more of the fleet becomes electric, there will be even less money, hence the proposed VMT. However, a much better way is to simply toll these highways to cover maintenence, and to preferably toll heavy vehicles a lot more. That only leaves the local roads. Those are and will always be paid for via local income taxes, real estate taxes, and various fees. You don’t need a VMT here, nor would one be justified.

    Now let’s look at externalities. You can directly charge all vehicles for externalities like the space used for parking, so no need for a VMT here. As for tailpipe emissions, a (much higher) gas tax is the perfect way to charge for that, as well as to incentivize motorists to switch to electric cars. If you have a VMT, all of a sudden much of the reason for switching to electrics goes right out the window. Allowing electric cars to essentially have no fuel tax for all eternity makes the payback period on the investment that much shorter. It also makes sense because electrics can have zero pollution externalities if charged from renewable sources. Even if they’re charged from coal plants, they still result in less CO2 and far less noxious pollutants. Moreover, those emissions are in remote areas, not in population centers.

    Ideally, the best ways to both pay for road maintenence and reduce use of private vehicles is to toll limited access highways, levy congestion charges in urban areas, and increase the gas tax to incentivize transitioning the smaller remaining fleet to 100% electric as rapidly as possible. You can also give tax credits for the latter and/or pass laws requiring zero emissions vehicles in or near major population centers.

  • Joe R.

    @d8d46f16f380afef59ca318522397233:disqus Doing the math gives $25,600 per mile for 40 ton semis. No need to charge that much in practice, however. Just make the charge high enough so that the cost of using trucks for long distance shipping outweighs any benefits. You could accomplish much the same thing also by just tolling limited access highways and having a prohibitive toll for heavy trucks. Once these heavy trucks are off the roads, the cost of road maintenence will drop exponentially.

  • Anonymous

    It must really take a bunch of geniuses to come up with such a stupid idea.  Why it’s stupid is amply explained in comments below, and the only reason I think it has any traction is due to influence by an oil industry that hates the gas tax and doesn’t want low mileage, inefficient, polluting vehicles penalized.

  • calwatch

    The economist’s wet dream of a infinitely variable VMT by date and road is not going to fly. People are not that rational and such a system would be impossible to calculate for the population with IQ’s below 100, which by the way consist of the majority of people. We need to raise the gas tax, tie it to inflation, and immediately toll all new capacity, with congestion prices clearly displayed prior to use of the facility with no regrets.

  • Anonymous

    Why does NO ONE ever mention that completely anonymous system at work in Singapore where you basically use pre-paid mile cards that you can buy from any gas station? Why is this so hard to figure out?

  • RepubAnon

    Here’s an idea:

    1) Raise the gas tax

    2) Put in congestion pricing using dash-mounted transponders

    Yes, I realize that the Department of Homeland Security would really like us to have GPS units monitoring out position 24/7… but please don’t sell it as a mileage tax.

  • Anonymous

    This is ridiculous.

    A mileage tax would subsidize speeders and SUVs.

    Driving 55 mpg / 90 kph on highways uses less fuel than going 65 or 75.  A gas tax ensures that those who speed pay more.  A mileage tax charges the same for speeders and those who drive more sane speeds.

    A 15 mpg SUV and a 40 mpg car would pay the same fee.  

    Considering that oil supplies are finite — and the size of the reserves exaggerated by oil companies — the last thing we should encourage is more subsidies to SUVs.

    The gas tax finance crisis would not be as severe if highway departments were not trying to build another trillion dollars of highway expansions across the country.

  • Guest

    Bad idea. Just raise the gas tax. VMT would eventually turn into a way to monitor everyone. At first they’d probably rely on self-reporting to make it seem less intrusive on your privacy. However, pretty soon they’ll say because there’s too much under reporting they need to install devices in everyone’s car to determine how many miles we all drive. No thanks.

  • Jed Pekoy

    Great ideas Karen. I share your thoughts. How do we get this into the heads of the masses and our chicken poop politicians?

  • Jed Pekoy

    “Taxing the crap out of all carbon emissions” Absolutely love it! Well said. I say we peg about $8.00 worth of taxes on top of what we already have. We do this over about 10 years to give people and companies time to transition. The other HUGE benefit of this is that, it will force the oil companies to keep their prices down to make up for the increased costs of gas at the pumps due to the tax, and thus decrease the political power of this filthy regime.

  • Jed Pekoy

    Did you not read all of the common sense rejections to this insane idea?

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