Taxing Miles Driven - Senate Exploring Funding Options

March 25th, 2011
in econ_news

Econintersect:  Chairman of the Senate Budget Committee Kent Conrad (D-ND) called on the Congressional Budget Office (CBO) to look at alternate ways to fund the USA highway systems.

Currently, the Federal tax on gasoline and diesel raises about $35 billion a year.  Expenditures on highways is $45 billion.  Hence, the government is looking for ways to close the shortfall.

Follow up:

The problem of course is that the current mileage requirement will likely cause the amount of fuel consumed to contract making this shortfall to grow in the years to come.  Lawmakers believe gasoline tax unfairly burdens the poor who have older cars using more fuel - yet the CBO study shows the cost burdens remarkedly similar.  The CBO also identified rural residents who might carry unfair burdens.

The simple solution might be to increase fuel taxes.   This CBO study confirms that there is a direct relationship between miles driven and road requirments and maintenance requirements - with the heavier vehicles causing higher maintenance.

This CBO study leans towards taxing cars based on the miles driven - and to reduce the fuel tax to optimize use of the roads.

One problem was identified:

For users, capital costs would be high if older vehicles had to be retrofitted with the equipment used to meter travel and communicate data, and the potential for technical problems and tampering could be high as well. Waiting until that equipment became standard in all new vehicles would reduce capital costs—particularly the incremental costs if equipment with similar capabilities would have been installed anyway—but the transition period might be 15 or 20 years. Between 4 percent and 7 percent of cars are scrapped every year, and the average age of a light-duty vehicle (as of October 2009) was 10.2 years.

Loss of personal privacy was a raised concern:

Although many policy issues can be analyzed primarily in terms of effects on efficiency and equity, proposals for VMT taxes may involve a third important category of effects—namely, effects on people’s ability to keep information about their driving private. The type of VMT tax that provides the strongest incentive for efficient highway use could pose the greatest concerns about protecting users’ privacy. Specifically, the more detailed the information a system uses—including the data on location and time of travel needed to discourage travel on congested roads—the more the information could be used to reconstruct, or even monitor in real time, a vehicle’s travel.

However the roads are taxed - all costs are eventually paid by consumers.  In other words, all costs of government and business are passed along to consumers. 

source: CBO


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