Mileage-Based User Fees: A Tax By Any Other Name

Note: This article originally appeared in the Summer issue of Driving Freedoms, the NMA’s quarterly member newsletter.

By Gary Biller, NMA President

Depending who you listen to, there are different reasons to institute a mileage-based user fee (MBUF) to supplement or replace the current per-gallon tax we pay at the gas pumps.

One claim is that a “pay based on where you’ve been” tax will lower the amount of national vehicle miles traveled (VMT) during the course of a year, helping to relieve traffic congestion and decreasing our dependence on foreign oil. (The MBUF has alternately been referred to as a VMT tax.)

The State of Washington enacted legislation three years ago to reduce greenhouse gases, with a MBUF program as one of the key strategies.

But serious purveyors of a mileage-based tax acknowledge that the goal is to increase highway fund revenue. Their claim is that, with ever-improving vehicle fuel efficiencies, the existing gasoline tax simply isn’t generating enough money to pay for highway maintenance and improvement.

Gas/electric hybrids haven’t made a substantial dent in the nation’s fleet of cars. Even if the Obama Administration’s goal of having one million electric-powered vehicles on the road by 2015 is met, that will constitute perhaps one half of one percent of all road-worthy cars and trucks in the United States. Yet there is concern by spenders in Washington D.C. that electric cars will further erode the amount of money collected via the gas tax.

Never mind that a chunk of funds generated by the gas tax has historically been diverted to other non-highway (and even non-transportation) projects or that the collection and redistribution of the gas tax revenue is terribly inefficient by anyone’s definition.

In a 2007 report (“Paying at the Pump: Gasoline Taxes in America”), Jonathan Williams, then of the Tax Foundation, wrote,

“. . . current federal highway legislation authorized over 6,000 earmarks from the highway trust fund. Some of these went to legitimate transportation programs, but others were earmarked for items such as the infamous ‘bridge to nowhere.’ Today, gasoline tax revenue is spent on everything from public education and museums to graffiti removal and parking garages.”

This is a chronic problem borne of the political process of Washington D.C..

The Transportation Review Board issued “Special Report 285” in 2006, noting that two years earlier the U.S. federal government collected $107 billion in highway user fees, with the majority coming from gas tax revenue. The TRB also reported that only $85 billion of that total was devoted to highway spending.

Before jettisoning the gas tax, our revenue-centric politicians would do well to first ensure that highway user fees are being applied solely to highway improvement projects.

Then they should reform the convoluted process by which gas tax revenues are funneled back to Washington D.C. and the Department of Treasury bureaucracy before being redistributed to the states via federal highway funds. Each administrative layer adds unnecessary overhead costs.

In short, the conversion of highway user fees into funds for improving our highways is a highly politicized process rife with misdirected funds and the application of wasteful overhead expenses. Is there any wonder that a disproportionate amount — $22 billion in 2004 — of what motorists pay at gas pumps, at toll booths, and through various mandatory excise taxes never gets applied to maintaining and improving our highway infrastructure?

U.S. Congressman Scott Garrett (R- NJ) recently introduced a bill that would cut the feds out of the highway funding equation and place primary responsibility for transportation projects and taxing authority with the states. Garrett hopes his Surface Transportation and Taxation Equity (STATE) legislation would free states from heavy-handed federal influence and more efficiently apply gas tax revenues to highway projects.

But as Jim Walker, a Michigan member of the NMA has aptly noted, Garrett’s bill “ . . . probably doesn’t stand a ghost’s chance in hell of passage. Most D.C. politicians and bureaucrats on both sides of the aisle hate to give up power.”

At its core, the gas tax remains the fairest method of collecting highway improvement funds. In a 2009 editorial, NMA President James Baxter wrote:

“Fuel consumption is considered a good indicator of use and the impact on roadway infrastructure. Miles traveled and weight-based demands and wear and tear on our highways are reflected in fuel consumption. The fuel taxes are further adjusted to shift costs to those road users who have an exaggerated impact on our highways, for example large trucks. The first fraudulent assumption is that the fuel tax is not, and cannot meet our funding needs. The argument goes, ‘the public is resistant to increasing the fuel tax and therefore it is not a viable taxing mechanism.’ Or ‘fuel use is declining and with it so are fuel taxes.’ If the fuel tax was sufficient to build the Interstate system (and most of the remaining road system) and maintain it all these years, why is it no longer viable?”

There is no reason the current gas tax structure cannot be adjusted to deal with today’s higher fuel efficiencies in order to collect adequate revenue to support our nation’s highways. It may take a bit more ingenuity to charge drivers of electric vehicles fairly for their share of wear and tear on the roads, but that is not an insurmountable issue.

Why the talk about instituting a mileage-based user fee then? Because a MBUF that uses global positioning system technology creates opportunities for the government to confuse motorists with a series of new taxes and surcharges. And by “confuse,” I mean obscuring the basis and intent of the taxes to the point where the driving public will not feel comfortable challenging those charges.

The idea of installing a GPS tracking device in every vehicle, one that could be downloaded at a specially- designed gas pump or moni- toring station, has been gaining support by policy makers and transportation industry experts. The former see a means to generate a new level of revenue from motorists, while the latter envision a means to redirect traffic patterns in urban areas through disincentives.

This is onerous on many levels. Let’s start with the cost of implementation. There are over 200 million vehicles on the road in the U.S. Even if the cost of a GPS transponder can be minimized by mass production to, say, $15 per vehicle, the cost of installation will probably add at least another $25. 200 million vehicles at $40 each would equate to a cool $8 billion “investment” in a MBUF program.

Vehicle owners and taxpayers – through government subsidies – no doubt would bear the brunt of this cost. (Double taxation, anyone?) The current gas tax has no such implementation cost. And the current system does not discriminate against financially-disadvantaged drivers whose taxes pay for the upkeep of roads that congestion fees would effectively screen them from.

Charging commuters in high traffic areas with congestion fees is a popular concept among urban plan- ners. A few international cities have charged such fees for several years. London, for example, began a conges- tion fee program in 2003, picking the pockets of commuters who drove through specified zones in the city.

Last December, London scrapped the congestion fee in one area, the Western Extension Zone. During the first three months of 2011, traffic entering that zone increased by eight percent compared to the same period in 2010. Retail business owners were ecstatic. Said Yuliya Zakharenko, one such trader, “Businesses are growing because there are more people around. It was a desert before the zone was removed. When it finally went it was a huge relief.” She added, “Before we were only seeing locals, now we are finally getting random customers. In the last month, we’ve seen takings rise between 20 and 30 percent.”

Chalk up another corollary to the law of unintended consequences: congestion fees hurt small businesses which, in turn, hurts the economic growth of the region.

Perhaps the most disturbing aspect of the GPS tracking of every vehicle is the government commencement of a data-mining operation that would end the ability of individual motorists to travel public thoroughfares unmonitored.

In essence, the nation’s roadways would be converted into one giant monopoly of wireless toll roads. The tolls on each vehicle would vary based on time of day, day of week, location of travel, and even the nature of traffic encountered.

Increased taxation. Schemes that will keep motorists from using public roads paid for by their tax dollars. Loss of freedom to travel without government tracking.

These are just some of the reasons the NMA opposes mileage-based user fees. The current gasoline tax, with some necessary reforms, is a fair and effective method of charging highway users for the natural wear and tear incurred by the nation’s highways.

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