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Tax Miles? I still think I have a better idea…

The California Legislature is looking at a voluntary program that would tax motorists for every mile they drive.

KCAL9’s Bobby Kaple reports that Sen. Mark DeSaulnier, D-Concord, introduced a bill to test out the vehicle miles traveled (VMT) tax because the state’s gas tax was no longer bringing in the revenue it used to due to people driving more fuel efficient vehicles.

via losangeles.cbslocal.com

It's been almost exactly 7 years now (May 8, 2007) and people still aren't listening to me. 

Taxing miles creates perverse incentives for fuel efficiency.  A $0.015/mile tax (the size of the tax mentioned in the article) is the equivalent of a $0.015 * X tax per gallon where X is mpg.  In words, a mileage tax increases the tax per gallon the more fuel efficient the car.  Now granted, with higher mpg you use fewer gallons to drive an equivalent number of miles, and in the end, everyone driving 100 miles will pay the same tax.  And from a revenue perspective, that might be OK.  But there might be a way to kill fewer birds with one stone.

As I have written a number of times, a more straightforward proposal is to simply raise the gas tax.  Reaising the gas tax accomplishes a number of things 1) It raises revenue, 2) It discourages miles driven, and 3) It increases the incentive for higher fuel efficiency. 

Because my previous posts on this have been written with an ironic twist (I propose a mileage tax that is inversely proportional to fuel efficiency and then show that such a tax is the equivalent of a $1/gallon gas tax), here's the direct, non-ironic version:  A $1/gallon gas tax…

…places a higher burden on those driving less fuel efficient vehicles–that should satisfy those blaming the SUV drivers for all of the problems*.

…places a higher burden on those driving more.  By increasing the marginal cost per mile driven, total miles driven should decrease.

…assuming fuel efficiency and income are negatively correlated–that is, the rich tend to drive larger, more expensive, less fuel efficient cars–[higher gas taxes] place a higher burden on higher incomes.

…provides an incentive for drivers to switch to more fuel efficient vehicles.

It's really simple.  Why worry about complicated milage programs?  The gas tax infrastructure is in place.  Raise the gas tax and meet multiple public policy and economic goals simultaneously.

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  1. Vincent Vizachero Avatar
    Vincent Vizachero

    ” Why worry about complicated milage programs? ”
    Because the goal of the tax is NOT (should not be) to increase the “incentive for higher rule efficiency”.
    The goal of a tax, any tax, is to allocate the cost of providing a public service to the public. in this case, the goal is to allocate the cost of building and maintaining a road network to the people actually using that road network.
    The downside of using a gas tax to do that is that it allocates the costs to gasoline users instead of drivers. Drivers of electric cars cause just as much wear and tear on roads and bridges: why should they get a free ride?
    If there are multiple goals (e.g. pay for roads AND reduce air pollution) then the optimal solution is likely complicated (e.g. a mile tax AND a carbon fuel tax) and not simple.

    Reply
  2. Lauren Housley Avatar
    Lauren Housley

    “…assuming fuel efficiency and income are negatively correlated–that is, the rich tend to drive larger, more expensive, less fuel efficient cars–[higher gas taxes] place a higher burden on higher incomes.”
    I don’t know if that’s a valid assumption, anymore; the appearance (at least) of environmental conscientiousness is now a wealthy-man symbol as well (in democratic circles, anyway), and the wealthy are the ones who can afford to invest in a hybrid or electric car with the expectation of future savings on gas eventually reducing the total cost of operating the car.
    Poor people tend to drive old cars, which are generally less fuel-efficient.

    Reply
  3. skyhed Avatar
    skyhed

    The weight of the vehicle and the miles driven correlate with both fuel consumption and wear-and-tear on the road. Therefore, the fuel tax encourages a combination of lighter vehicles and less driving. Vincent is correct that electric vehicles escape, but they’re a small portion of the cars and trucks, and tend to be light. Anyway, they should be subsidized right now to produce economies of scale.
    Lauren, gas taxes are definitely regressive, but the tax could be used to benefit the poor and middle class, or else to lower the sales tax.
    I also think the paid express lanes being implemented on the freeways are moving us toward a congestion tax, which will be a big help with the crowded freeways.

    Reply
  4. Tim Haab Avatar
    Tim Haab

    In a related Twitter debate, a couple of people have pointed out that Small and Parry (2005 American Economic Review) show that an optimal mileage tax has significant welfare advantages over an optimal gas tax. I’m aware of Small and Parry’s results and although have a few issues with their analysis, respect the findings. It should be noted that the optimal mileage tax they find ends up being about 15 cents per mile driven (10 times that proposed for California). As they point out, this is equivalent of about a tax of $2.50 per gallon on average.

    Reply
  5. Michael Giberson Avatar
    Michael Giberson

    Re: “1) It raises revenue, 2) It discourages miles driven, and 3) It increases the incentive for higher fuel efficiency.”
    Neither 2 or 3 are appropriate goals for public policy, though both might be consequences of public policies with appropriate goals. Stick to efficiency as a policy goal, leading to “internalizing the externalities” as a means, and let people decide whether they want to reduce miles or pursue higher fuel efficiency or take public transportation or whatever.
    Other than occupying space on the road that other drivers could be occupying, hence some modest opportunity cost involved, “miles driven” produce benefits (errands to grocery stores, visits to grandma’s house, road trips with the softball teams, etc.), which need not be discouraged per se by public policy.

    Reply

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