Albert Einstein once said that a workable definition of insanity is doing the same thing over and over again and expecting different results. Sign me up as crazy: Let's talk about the federal gasoline tax (again).
By way of reminder, the federal gas tax is imposed at a rate of 18.3 cents per gallon for regular and 24.3 cents per gallon for diesel, rates that haven’t increased since 1993. I appreciate that nobody enjoys paying taxes. But in terms of tax policy, the gas tax is as close to beautiful thing as a society will ever get.
Traditionally, the tax resembles a user fee. It’s paid by motorists as they fill their tanks, and the receipts are plowed back into the country’s transportation and infrastructure needs. That’s an apt match between those who bear the burden and those who reap the benefits.
In case you missed it, infrastructure has been in the news lately. Not one, but two, infrastructure proposals are working their way through Congress. The first enjoys bipartisan support and carries a price tag of around $1 trillion. The second infrastructure proposal is supported only by Democrats, and it carries a higher price tag of around $4 trillion or $5 trillion.
Combined, the plans could total $6 trillion in new spending. Some folks are alarmed by that number, fearing the long-term consequences of deficit spending.
I happen to like the concept of infrastructure spending because it involves positive externalities. Generations ago, the national highway system was simply another infrastructure project – one that American society has benefited from ever since. Just imagine the return on investment if we compared dollars spent and dollars saved.
But I digress. Let’s save the infrastructure debate for another day. The question here is how Congress intends to pay for all this (even if we limit our frame of reference to the bipartisan plan). We caught a glimpse of the revenue raisers lawmakers have in mind. To my (predictable) regret, the list of pay-fors does not include an increase to the federal gas tax.
Actually, a group of Republican legislators recently floated the idea of indexing the gas tax to inflation. Some, including Ohio Sen. Rob Portman, made a point of referring to the gas tax as a user fee in an effort to make it more palatable to conservative tastes. Portman isn’t running for reelection in 2022, making it safe for him to talk about raising the gas tax. In my perfect world, our elected officials could talk about tax policy regardless of election cycles.
Notably, China, our great rival on the global stage, loves nothing better than pouring vast sums of tax revenue into public infrastructure projects. The Chinese claim that infrastructure spending pays for itself. But, again, I digress.
This time around, Democrats nixed any change to the gas tax. Their reason was that an increase would seem to violate President Biden’s campaign pledge to not increase taxes on households earning less than $400,000 per year. My perfect world would also involve presidential candidates no longer making promises that they would never raise taxes on specific, identifiable groups. Of course, in the real world, that might mean they’d never get elected.
Here’s the point to keep in mind during future conversations on the gas tax: We need to rethink the notion that it functions as user fee. Why? Thank Elon Musk. The gas tax has a Tesla-shaped problem, which some readers will recognize as a manifestation of the free-rider (pun intended) syndrome. Plug-in vehicles don’t have gas tanks. Their drivers don’t pay the gas tax, but they still benefit from roads, highways, and bridges that it funds.
One solution is to supplement the gas tax with a separate mileage-based tax applicable to electronic vehicles. Owners of these vehicles would note their annual mileage and disclose it to their state department of motor vehicles, which would send them tax bills.
If we want to get fancy, we could rely on technology to do the reporting for us. Today’s e-vehicles are basically computers on wheels, and they are equipped with GPS mapping capability. The cars could track annual mileage far more easily than their owners could. The resulting data could be conveyed to the state DMV, and drivers could pay the tax when they renew their state vehicle registrations. States could assess and collect the tax, remitting the funds to the federal government. Alternately, states could be empowered to retain a share of the tax receipts, as an advance on transfers of federal highway funds.
Voila! We’re back to a near-perfect user fee that matches burdens and benefits. What’s not to like?
We could use this revamped tax as a key source of funding for the pending infrastructure plans. But myopic political considerations make it seem unlikely. Once again, tax politics have triumphed over tax policy, and certainly not for the last time.
Still, don’t surprised if a mileage-based tax is part of the future. Your car’s GPS feature isn’t just a clever way to help with directions, it’s on its way to becoming a deputized tax collector.