The downside of lower gas taxes

Jun 09, 2009


President Obama’s recent announcement that auto fuel efficiency standards are being sped up to require an average per-fleet fuel economy of 35.5 mpg for cars by 2016 (the previous goal was 35 mpg by 2020) has its environmental and geopolitical merits. Less green house gas emissions, less dependency on foreign oil producers is a very big win-win.

But it is potentially lousy news for the roads we drive. A primary funding mechanism for road and bridge construction and repairs is through the imposition of pay-at-the-pump gas taxes. The federal government collects 18.4 cents on each gallon of gas sold, and every state (except Alaska) tacks on its own levies, ranging from 20 cents to 40 cents per gallon. By pushing us into more efficient cars, the federal and state governments are going to take in less gas tax revenue. And it’s not as if they are exactly running big surpluses to make that palatable.

Consider that the 2010 Toyota Prius clocks in at an estimated 51 miles per gallon. Assuming 15,000 miles driven a year, the Prius owner pays just $54 in federal tax. The same mileage on the 2009 Hyundai Genesis--voted North American Car of the Year--generates a minimum of $102 in federal tax. (I gave the Genesis the benefit of the doubt and used its highway average of 27 mpg rather than its less-efficient 18 mpg for city driving.) If both cars happen to be driven in California (40 cents/gallon in taxes) the Prius driver pays an additional $118 into state coffers, while the Genesis owner owes $222.

The hit to gas-tax revenue has not gone unnoticed by the folks collecting the revenue. Oregon road-tested a program that would replace the gas tax with a mileage tax, and other states are also considering similar pay-as-you-go taxes levied on your actual miles driven. (For the privacy-possessive out there, yes, GPS is how the data is collected.)

And the National Surface Transportation Infrastructure Financing Commission (translation: a bipartisan panel of government and industry folks concerned about roads and bridges) recently backed switching from a gas tax to a mileage tax as a long-term solution for road and bridge funding. The commission estimates that to meets its base case for maintenance and improvements, the tax would be roughly 2.3 cents per mile.

Yet when Transportation Secretary Ray LaHood floated the mileage levy as an idea worth pursuing in an April interview with the Associated Press, the White House quickly went out of its way to say LaHood was wrong. That may be the politically expedient response in a recession, but eventually something’s gotta give.
The commission pointed out that the shortfall for federal highway and transit projects is expected to run $400 billion from 2010 through 2015. In the meantime, the commission’s proposal to cover shortfalls is to raise the federal gas tax by 10% (it hasn’t budged since 1993); it’s not hard to imagine cash-strapped states will be looking for near-term solutions to the growing shortfall too.

–Carla Fried

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