by James A. Bacon
As the U.S. automobile fleet shifts to higher mile-per-gallon vehicles and, eventually, to electric cars, the gasoline tax will become increasingly outmoded as a revenue source for transportation. No serious person disagrees. The question is: What do we replace it with? Another report, this one from the Center for Transportation Studies at the University of Minnesota, makes the case for MBUFs (Mileage-Based User Fees).
In “From Fuel Taxes to Mileage-Based User Fees: Rationale, Technology, and Transitional Issues,” the authors base their argument on the basis of efficiency, equity, revenue adequacy and environmental sustainability. Their main hang-up is feasibility — how the fee should be administered. I find the arguments based on efficiency and equity to be the most persuasive and will address each.
The case for efficiency is strong. The authors, who hail from the university’s Department of Applied Economics, display impeccable economic logic when they write:
For a tax to encourage efficient user behavior, it should send the right price signals to drivers so that only those drivers who value the use of the road above the cost they impose will use it. … Fuel taxes send weak price signals to drivers and thus lead to inefficient overuse of the highways. This is the result of users underpaying for system use, and users being unaware of what they do pay in fuel taxes. Overuse, in turn, leads to high levels of congestion, emissions, and may result in less-optimal modal use in term of efficiency. In addition to sending weak price signals, fuel taxes fail to provide proper price signals to public officials and investors and thus may direct investment away from the more economically worthwhile projects. Finally, fuel taxes have little connection to land use, and fail to discourage urban sprawl or support livability principles.
Excessive congestion… Over-investment in roads and highways… Misallocation of capital to economically unjustifiable projects… In sum, a funding arrangement that only politicians could love!
The study also argues that MBUFs are more equitable. When originally implemented a half century ago, the federal gasoline tax was an effective user fee. But the tax will meet the user-pays-and-benefits principle less equitably than in the past “as those with newer cars pay increasingly less in fuel taxes per mile traveled than drivers with similar, but older and less fuel-efficient vehicles, even if both types of vehicle owners travel the same distance and impose the same cost on the highway system.” All-electric vehicles, which pay no gasoline tax, will be getting a totally free ride. In a related note, the authors argues that the gas tax is regressive, hurting lower-income Americans harder, because affluent Americans are more likely to shift to hybrids and fuel-efficient vehicles that consume less fuel and pay less in the gasoline tax.
The authors also contend that the motor fuels tax is failing on grounds of fiscal adequacy and environmental sustainability, but I find their arguments less plausible. The problems they cite are not inherent in the nature of the tax but in the fact that politicians have been unwilling to increase the tax as its value is eroded by inflation and increased fuel economy. If politicians are unwilling to increase the gasoline tax to a level sufficient to cover costs, what assurance is there that they would set a mileage-based user fee at a level sufficient to cover costs? None at all.
The main advantage of the fuel tax over an MBUF system is ease and expense of administration. But those savings are measured in the hundreds of millions of dollars while the loss of economic efficiency is measured in the billions of dollars. Virginia should start laying the groundwork for a transition to MBUFs immediately. It will take years of debate to choose the right technologies and hash out the inevitable privacy issues. We cannot wait until the gasoline tax collapses to begin that process. There is no time like now.
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