Friday, November 11, 2011

A Mileage Tax or a Gas Tax?

Our fair Governor has proposed a mileage tax on top of a gas tax hike to address the lacuna in transportation funding.  This raises the question of which is better and what do they accomplish.

If you are proposing Pigovian taxes, then both make sense but address very different things.  Driving a car imposes external costs through the impact on the environment, through the wear and tear on the roads and through the time cost of congestion.

A mileage tax addresses the wear and tear issue.  People who drive will be assessed a tax that is equivalent to the cost of the road wear they are responsible for.  This has the benefit of being fair and providing a direct source of funds to maintain the roads and is a disincentive to drive once the external cost is made internal through the tax (and also taking into account the cars weight, etc. - of course how will they deal with studded tires and chains?).  The implementation is costly however, having a GPS in each car has got to be expensive as well as the cost of reading them and imposing a tax.  Perhaps we could just do a mileage charge - not as accurate but simple.

The mileage tax does not address the congestion issue, but with the GPS it could, one assumes.  If you drive on certain congested roads at certain rush-hour times, you could be charged more. This would provide the same Pigovian incentives to avoid driving during rush-hour or in congested areas.   The GPS could also determine how much tax should go to municipalities, counties, and the state depending on which roads you drove on.  But doing these things would seem to be an enormous computing challenge and one that would be enormously expensive.  It is an interesting idea, however.

The gas tax is Pigovian in addressing the environmental impact of the amount of carbon emitted which is exactly related to the gas used.  If the primary goal is to address this than this is the appropriate tax.  

It is clear that each tax is also a poor way to address the other issue, to wit: a gas tax is not a good way to address wear and tear because a Prius could do a lot of wear and tear with little gas and a Mustang could do little wear and tear with a lot of gas; and a mileage tax doesn't work, for the very same reason, as a way to address environmental impact.

Both taxes could be implemented, but since the gas tax is good for the environmental impact side and, though imperfectly, does address the wear and tear side as well, and is basically zero extra administrative cost, it seems like the clear winner.  However, if the GPS system could be done very cheaply and has the added congestion and differential tax components, it might be worth pursuing.  Perhaps it is politics but I don't see what's wrong with a healthy increase in the gas tax - besides the GPS monitors will just serve as a constant reminder of the government's taxation which will fuel the anti-tax sentiment latent in almost everyone.

Note: One thing I failed to mention is that the milage tax is imperfect in that non-Oregon registered cars that drive in Oregon (for example, Vancouver commuters) would get off scott-free.  At least a simple gas tax would catch some of them and would work both ways (Oregon drivers in Washington would pay for Washington's roads only when they buy gas in Washington).


Dave Porter said...

Interesting post!

There are two other, related dimensions to this issue. They are foreign policy and trade.

The foreign policy dimension, perhaps best viewed as some kind of externality, is that, with our purchases of gas, we are funding a variety of states around the world that are not our friends. In some cases, they are our enemies. In other cases, they are the enemy of their own peoples since our gas purchases support the worst elements in such states, hindering them from developing just and democratic political systems. A gas tax, one hopes very substantial, would work fine to reduce this externality.

The trade dimension is that the US, and Oregon, imports most of its gasoline. That is money we send abroad. By taxing imported gas, or even all gas, we could shift some of those payment to in US, or in Oregon, suppliers of alternative energy and alternative energy vehicles, keeping the money at home.

Adding the environmental dimension to the foreign policy and trade ones yields, in my view, a strong case for a substantial gas tax. But we would not need to use this gas tax to pay for roads and highway infrastructure. Largely for political reasons, such a gas tax should be revenue neutral, returning the taxes raised to the public in some equitable fashion. But part could be used for roads, etc.

But once there are a significant number of non-gas powered vehicles on the road, the rationale for taxing gas as a users fee disappears. It would not be fair.

DaveR said...

the best road tax is a tire tax that is based on size of the tire and the weight rating. The tax would be greater on a one ton pickup tire than a Ford Focus tire. It is weight and mileage that wear out roads.

IKEonic said...

Great post and comments, everyone.

I've written extensively on this at my non-economics blog, go to to read my arguments in detail.

I'm a conservative but I favor raising the gas tax. It's a good user fee tax. I agree with the comments on a tire tax as a possible additional tax. These taxes are a good use of government's taxation power and the taxes are used to pay for the transportation network we all use.

Ted's mileage tax is ill conceived and might sound cool to techy geeks but practically speaking is one of the dumbest ideas I've heard him pitch. The gas tax has served our nation well for decades. Make the argument for raising it and get it done.

Marvinlee said...

I concur on raising the gas tax. Doing so can lower imports, increase tax revenues, and help maintain roads, which deteriorate whether used or not. Since I live in a rural area, I will be more affected than many city dwellers. So be it.