What Should be Done if Gas Taxes Aren’t Raising Enough Revenue?

One thing that confuses me about transportation funding is the idea that raising gas taxes is politically impossible, but creating new forms of transportation taxes like a tax on every mile you drive would be feasible. To me, the raising gas taxes seems far more efficient since all of the systems are already in place to collect the taxes.

For an example of this, I’m going to break down a portion of an interview on the Exxon Mobil funded American Enterprise Institute’s website with U of MN transportation professor, David Levinson. Among the topics discussed was how transportation should be priced in the future. Levinson explains:

One of the predictions I have is that we eventually move over to tolling. Now, one of the reasons is if vehicle miles travel declines, the revenue source that we’re going to be using – that we’ve been using since the 1920s and are continuing to use to fund a lot of our road system — is the gas tax.

If we’re bringing in less revenue from gas taxes due to less miles being drive (or less miles than projected) it seems like raising gas taxes could make up for that fairly easily. It’s not like driving has plummeted in America, so we’re not talking about extreme measures.

Well, we’ll be consuming less gas because – gasoline because miles traveled goes down and we’ll be consuming less gasoline because fuel economy is improving and because we’re moving towards an electric freight.

If gas tax revenues dropped by 2%, gas taxes would need to increase by ~2.1% to make up the difference. What effect would nudging up gas taxes 2.1% on have on gas prices? It would cause them to spike by . . . 1.4 cents per gallon. Creating a new form of taxation seems far less efficient than making small adjustments to the gas tax over time.

If gas taxes were increased that little, I would expect it to have nearly no impact on people’s car purchase decisions and driving behavior. It would make up for lost revenue from fuel efficiencies and lower miles traveled without causing behavior-modifying pain.

But, if gas taxes were increased significantly more than that more people might consider buying slightly more fuel-efficient cars for their next purchase. Say, a Civic rather than an Accord. Or, consider the hybrid model. This seems like something that could create a positive feedback loop. If so, perhaps the increase in taxes would be offset by lower fuel prices caused by less fuel demand? It seems like the side effects of higher gas taxes (less congestion, getting hit slightly smaller cars, sharing the road with quieter cars, less damage to our roads, dealing with less ridiculous parking jobs by trucks that can’t fit into parking ramp spots, less dependence on oil, and less pollution) are fairly positive.

We have to switch from the gas tax to something else to fund infrastructure.

No, we don’t. The USA has the worst fuel efficiency standards in the world, yet countries with far more efficient vehicles still manage to build and maintain their roads and bridges. How so? It probably has something to do with gas taxes being far higher nearly everywhere else.

Retail Premium Gasoline Prices, Selected Countries

The country with the most expensive gas in the world happens to be an oil producing country. That’s right. They have oil, yet still have expensive gas because they think the benefits outweigh the costs. That country is Norway, where gas costs $10.12 per gallon with taxes. I had roommates from Norway in college, and when their friends from Norway came to visit they’d fight over who got to pay at the gas station because they thought it was so funny. They also thought it was funny that Americans had to take on so much debt to pay for college (their gas taxes help pay for roads AND free universities in Norway).

If we raised the federal gas tax from 18.4 cents to $7.184 per gallon, that tax would generate around one trillion dollars per year. According to this article, it would only cost around $13 billion to make public 2- & 4-year universities free in the USA. So, we could make college free for around 10 cents per gallon in gas taxes if higher education was a higher priority.

It would be interesting to see what changes $10/gallon would have in America. In my household (1-car family that drives around 11k/yr), that would equate to around $200/mo in additional car fuel costs, though not actually $200/mo in additional costs overall since it would just be a different way of paying for infrastructure and services than we do today. Still, I would imagine that it would create some changes in behavior. More fuel efficient cars are far easier to justify when they can save you thousands of dollars per year. For example, a family that drives a truck 15,000 and a car 12,000 miles per year with an average fuel efficiency of 20 MPG would spend $9,450 more per year on fuel at $10/gallon. A Prius starts looking pretty interesting when it saves thousands – rather than hundreds – of dollars per year in fuel costs.

Now, what that thing is, whether it’s congestion charges or whether it’s using general revenue is a political decision. We’d be much better off if we had congestion charges and mileage charges.

We already have congestion charges. When you’re sitting in bumper to bumper traffic, you’re getting crappy mileage. It’s a naturally occurring congestion charge. With gas taxes being so low in America, the pain doesn’t seem to adjust behavior to the degree that congestion charges (Levison’s apparent preference for having government impose those charges more directly) or significantly higher fuel costs would.

For example, if your car knew what your paid for gas, it could calculate and report your cost per mile for fuel in real time on the dash. At $3/gallon, cruising at posted highway speeds burning gas at a rate of 30MPG gallon costs 10 cents per mile in fuel. Once you hit congestion and are only getting 20 MPG or less in bumper to bumper traffic, your fuel cost jumps to 20 cents per mile or higher.

The gameification of driving behavior could be ratcheted up if people saw the real costs of their behavior, and even more if the stakes were higher due to higher gas taxes. A mileage tax, instead, would state, “You’ll pay the same cost no matter how much of a lead foot you are.”Watch Full Movie Online Streaming Online and Download

And we’re moving in that direction, it seems. But that’s got to be implemented and people are really nervous about the government tracking where they’re going.

There are privacy concerns, and there are people – like me – who say, “Why not just raise the gas tax?”

And that would replace the gas tax and it could replace a lot of property tax revenue. So most local governments fund roads via property taxes. And there’s no reason it should be based on property taxes, except that historically it’s been based on property taxes and it’s hard for local governments to implement gas taxes because if one of them implements a higher gas tax, then people can easily go to the next county over, the next town over and buy gasoline somewhere else. Whereas states, you’re less likely to leave state to buy gasoline.

Levinson’s vision appears to be that mileage taxes would not only subsidize revenue lost from less driving and more fuel efficient cars, but also chip away at the tax revenues used beyond gas taxes to pay for roads. Another, simpler, way to do this would be to raise the gas tax to chip away at those taxes. But, I can see why people who own a lot of property might prefer to see transportation costs shifted away from their vacation homes.

So gas taxes have traditionally been at the state level and property taxes have traditionally been used at the local level to fund roads, but there’s no reason if you have a mileage-based user fee and you have a uniform rate you couldn’t use that to pay for highway financing. And then you can differentiate the price. So if you’re driving when it’s less congested, you don’t pay as much. And if you’re driving in areas with less traffic in general, you don’t pay as much. Would be a couple of things that you could do to try to soften the impact of this and to use the financing mechanism to help manage roads better.

We already have that with gas taxes. The taxes are just too low for most people to notice or care. The wheel already exists, but needs to be pumped up to be more effective.

I’m trying to wrap my head around why we’d want to charge people less for driving on roads that have “less traffic in general”. It seems like the roads they’re driving on would be some of the least efficient roads to maintain since they generate so few miles of driving. If you own a vacation home at the top of a mountain accessible via winding mountain road, you may drive where there is less traffic in general, but you’re not likely generating enough taxes to maintain the road to your property. This person deserves a tax break because they drive where there is less traffic in general?

Now, whether we’re going to go to a full-fledged highly dynamic congestion pricing system, that’s, I think, a few steps away, but it would be more efficient if we did.

That would make sure that the wealthiest have the smoothest commutes even at the most congested times of day (ex. I-394). That probably plays well with the American Enterprise Institute’s audience. If congestion pricing like this provided a luxury service at a price far beyond the cost, thus creating a progressive tax rather than a regressive subsidy for wealthy people with long commutes, I could live with it.

Arguments like this make me wonder who’d be in favor of shifting away from taxes on gas to forcing people to pay by the mile regardless of the fuel efficiency of their vehicle. It doesn’t seem like too far of a stretch to assume that people who profit from selling more gas, or actively ignore the environmental costs of driving, might prefer such a model. And, it turns out that that’s the case, as Media Matters reports:

The idea of charging drivers by the mile rather than by the gallon has found unlikely allies in the conservative Taxpayers for Common Sense and the libertarian Reason Foundation, which supports the “more logical and fairer method of paying for state highway needs.”

Taxpayers for Common Sense and the Reason Foundation think it’s “fairer” to charge a 47.8 MPG, 2,921 pound Prius driver the same cost per mile as someone driving a 16.6 MPG, 5,397 pound V-8 Dodge Durango. Do those cars create the same level of damage to our roads or emissions into our air? It’s the kind of fairness that the oil industry loves, and is willing to lobby for, since they’d be the winners.

3 thoughts on “What Should be Done if Gas Taxes Aren’t Raising Enough Revenue?”

  1. Thanks for this Ed. I’ve always wondered exactly the same thing. I think there are two things driving this craziness about “needing” new revenue sources.

    First, I think we just have some of the worst economist and economic thinkers in the world in this country. Second, and related, the problem is that so much of our economic thinking comes from the business sector, which is also descending into mediocrity.

    Economic thinking tends to be driven by ideology (i.e. taxes are bad) and trendy fads. Many of the business-financial fads are the product of pseudo-innovation pretending to be creative problem solving. You end up with a lot of repackaged old ideas pretending to be innovation and bad ideas pretending to be cutting edge intellectualism.

    One other problem on display here is “market” delusion, the idea that a “market” of some kind will outperform tax collection. So you create a “toll market” or a “mileage market” that charges consumers instead of simply collecting taxes. Again, this is the product of intellectual mediocrity and ideology pretending to be innovation.

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