Would a Vehicle-Miles Traveled Tax Be Better than Current Gas Tax?

Projected shortfalls in dedicated federal revenues for transportation infrastructure have sparked discussions about alternative funding sources. The federal Highway Trust Fund has depleted the surplus it accrued in earlier years and had an $8 billion deficit in fiscal year 2009. This deficit, if unaddressed, is projected to grow in subsequent years. Earlier this year, the National Surface Transportation Infrastructure Financing Commission, created by Congress to explore alternative funding options, recommended an initial 10 cent increase in the federal gasoline tax (from the current 18 cents to 28 cents per gallon), but it also advised eventually replacing the gas tax with a vehicle-miles traveled (VMT) tax. A key question — aside from how much revenue a VMT tax would raise — is how a VMT tax could be used to reduce congestion and manage overall travel demand.

A VMT tax, which would be determined by electronic sensors that detect when a vehicle is driving on a specific road, would tie fees more directly to actual road use. The tax rate could be varied by road and time of day which could help distribute traffic flow more efficiently. A VMT tax would give transportation planners and budget managers the ability to set taxes that more accurately reflect the true costs of maintaining and operating roads and bridges. Such a tax may reduce the incentive to drive a more fuel efficient vehicle or use an alternative fuel source, unless vehicle or fuel type were somehow factored into the tax rate. A gas tax, on the other hand, provides a weaker incentive to economize on actual road use, but more directly charges for the emissions that accompany fossil fuel-powered vehicles.

A VMT-based system would be somewhat more complex to implement because they require a means of tracking travel, rather than simply charging for the amount of fuel purchased at the pump. However, there already have been several domestic pilot projects in locations ranging from Georgia to Oregon. A pilot project in Portland used an onboard mileage counter to transmit VMT information to pumps at participating gas stations. Using this information the VMT tax was automatically added to the driver's bill, while the gas tax was deducted.

Since reducing emissions, congestion, and fuel use and ensuring proper road maintenance are all worthy goals, pursuing a hybrid of these two approaches may be the best option. The Netherlands will begin implementing such a hybrid system in 2011. The tax will vary based upon location, time of day, and vehicle fuel efficiency. Moreover, it will be revenue neutral, as it will gradually replace the nation’s motor vehicle tax.

In the Washington, D.C. area, officials are seeking federal funds to study how the public would react to a VMT tax. Proposed by the Metropolitan Washington Council of Governments and the Brookings Institution, the study would evaluate a range of road pricing options that would supplement or replace gas tax revenue, and the potential benefits for traffic congestion and vehicle emissions.

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