Electric cars may help the United States fix its carbon problem, but they’re about to break the way America pays for its roads.
Every gallon of gas Americans buy is taxed to pay for highway improvements and other infrastructure projects. The federal government takes about 18 cents per gallon of gas (and 24 cents for diesel), while the states, on average, charge even more.
EVs escape this tax. As the Biden Administration pushes for the majority of American cars to go electric within a decade, the nation needs a new way to fund road repairs. That is why all of us, whether we drive gasoline, hybrid, or electric, soon could be taxed on the number of miles we drive.
A vehicle miles traveled (VMT) tax has become a hot idea for replacing the gas tax in the age of electric vehicles. Federal laws — including the Surface Transportation System Funding Alternatives (STSFA) program and the 2021 Infrastructure Investment and Jobs Act (as known as the Bipartisan Infrastructure Bill) — have even included money for states to run VMT pilot programs.
Economists and policymakers love VMT for a variety of reasons. Most importantly, says Adam Hoffer, director of excise tax policy at the nonprofit Tax Foundation, this approach creates a “universal toll road” where people who use the roads the most also pay the most for their upkeep.
“Gas taxes have worked really well as the best proxy for this for almost a hundred years now,” Hoffer told me. “What we're seeing is that with electric vehicles growing in market share, we need a new tool. Vehicle miles traveled taxes seem to fit that bill really well.”
Clifford Winston, a senior fellow in economic studies at the Brookings Institution, says another key advantage is that a VMT is customizable. “It has economically desirable features that go beyond generating the revenue that would be lost as the vehicle fleet turns over from internal combustion engines to EVs,” he says.
The tax could simply charge every vehicle the same number of cents per mile. On the other hand, the government could also adjust the cost up or down to incentivize good behaviors. For example, it could charge people less per mile if they drive EVs (and more if they stick with a gas-guzzler). It could put in congestion surcharges to tempt people to avoid rush hour, or charge trucking companies based on how much weight they’re hauling down the highway.
Winston’s version of VMT is an economist’s dream where price drives every choice. He compares it to the experience of calling an Uber or Lyft, where users are presented with several options at different price points. Now, he says, imagine the same scenario when you slide into your own car and enter a destination. The vehicle’s display could show you several routes with not only different driving times, but also different charges based on distance, congestion fees, or other factors.
There are downsides to this plan, of course, and not just that people may hate its complexity. Lots of folks have no choice but to drive during rush hour, and many can’t afford to replace an older car to take advantage of lower taxes on a new EV.
Privacy is the big one, Hoffer says. If drivers are charged a flat fee per mile, they would need to report their odometer reading to the taxman. A dynamic pricing scheme could be even more intrusive, requiring a way to track us everywhere, all the time.
The simplest way to confront this issue, Winston says, is to set up a third party so the government doesn’t have all this tracking data at its fingerprints. “A private company collects all this [information], sends it to the vehicle owner monthly, and says, here's your bill. Pay it,” he says. According to Hoffer, drivers already hand over this data when they sign up for car insurance programs like Progressive’s “Snapshot” that charge people based on how they drive. However, he says, privacy law around these issues is far from clear.
“There have been court cases before where lawyers have used real-time tracking data from these kinds of apps in lawsuits against people,” he says. “I think there are real questions about whether this data could be accessible via a warrant.”
There are less intrusive ways to replace the gas tax. Some states have begun to charge higher annual registration fees for electric cars to make up for the fact that they don’t burn gasoline. But a flat fee is a blunt instrument that can’t account for how far people drive. It also discourages EV sales.
An obvious replacement for taxing gas by the gallon would be to tax electricity by the kilowatt-hour. But you can’t really replicate the old system. While it may sound simple to tax fast-charging stations, lots of EV drivers do most of their charging at home. The electricity specifically used to charge a car is mixed in with the juice they use to run the dishwasher or the AC, making it hard to differentiate (not to mention that residential electricity is already taxed).
VMT may be the most logical solution to the gas tax problem, Hoffer says, but there are still plenty of bugs to work out. States currently running pilot programs, led by California and Oregon, are experimenting with how to practically implement the fee and how much it should be. It’s possible, Hoffer says, that a VMT will exist alongside the gasoline tax, at least while the U.S. car fleet goes through its transformation from gas to electric.
“I don’t see rapid adoption nationwide of a vehicle mile travel system — but I do think it is on the inevitable side of things,” he says.
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The European CCS boom. Chart: IEA