Pay-Per-Mile Tax Proposals

As the push for more fuel efficient transportation intensifies, U.S. officials are warning of major future deficits for the Highway Trust Fund, established in 1956 to support the construction and maintenance of the Interstate Highway System.

The Highway Trust Fund is financed through transportation-related excise taxes, the most significant of which is the federal gasoline tax. However, as fuel efficiency standards become stricter and Americans head to the pump less often, gas tax collections are expected to decrease over the next decade, and federal transportation funds could face substantial long-term deficits. A May 2012 report from the Congressional Budget Office showed that at 2012 spending and taxation levels, the Highway Trust Fund is looking at a $147 billion shortfall by 2022. After factoring in a 21-percent reduction in gas tax receipts due to increased fuel efficiency standards, that deficit increases to $204 billion.

The CBO determined that the government has 3 options to address the looming problem:

  • Reduce transportation spending;
  • Transfer money from the Treasury's general fund; or
  • Levy additional taxes.

As part of the BillTally project, NTUF analyzed legislation introduced by Rep. Earl Blumenauer (D, OR) in the waning hours of the 112th Congress that opts for the third course of action. H.R. 6662 would authorize $154.5 million to study the impact and feasibility of a mileage-based user fee system. Such a system taxes drivers by the number of miles they travel rather than the gallons of gas they consume. A report conducted by the Government Accountability Office (GAO) in the same month examined some of the costs and benefits of three different types of mileage tax methods: GPS, "pay-at-the-pump," and prepaid systems.

GPS systems use satellite technology and cellular transponders to track the number of miles a registered vehicle travels over a given time, which is then processed at a central location and billed to the driver. Obvious concerns include the cost of implementing such technology in the over 200 million registered passenger vehicles across the country, as well as the perceived invasion of privacy a tracking system of that magnitude is likely to provoke. Germany currently uses a similar system to tax commercial trucking industries.

"Pay-at-the-pump" methods require a wireless transponder be installed in every vehicle, which transmits mileage information to a central database when drivers go to gas stations across the country. Based on that data, fees are automatically adjusted for each driver before billing at the pump. Again, cost and logistical challenges are a major impediment to making this system viable, and some high-efficiency electric vehicles do not require trips to the gas station, making it difficult to enforce the fee collection for some drivers.

Prepaid systems require drivers to purchase "mileage licenses," which allow travel over a certain number of miles before the license must be renewed. Such a system is already in place in New Zealand, where it applies to diesel-fueled vehicles (mostly commercial trucks, but some passenger cars as well). The GAO noted that this system is prone to equity issues, as drivers can tamper with odometers to avoid paying fees.

Any of the three proposed systems would generate additional revenue over the long run, but they pose major logistical and financial challenges (both in implementation and administration), create privacy concerns for many Americans, and would significantly increase transportation costs.

The GAO report modeled the effect of a 0.9 to 2.2 cent per mile tax on a typical American driver, and found that even at those levels, taxpayers could expect to pay $108 to $248 per year in fees. Currently, the average driver pays about $96 in gas taxes each year. That would mean an increase of at least 12.5% in annual transportation expenses for the typical driver if Congress decides to follow through on these proposals.

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