Navigant Research Blog

Coming Soon: A Tax on Miles Driven

Scott Shepard — October 11, 2012

Ever since alternative fuel vehicles became a possibility, governments worldwide have wholeheartedly supported efforts to reduce greenhouse gas emissions through increased fuel efficiency standards and alternative fuel vehicles.  As average fuel economy of new vehicles increases, and natural gas, hybrid, and electric vehicles become more prevalent, those efforts are finally gaining traction.  These efficiency gains have been encouraging, but state highway and transit authorities, which derive funds for road maintenance and development through taxes on gasoline, are beginning to feel a financial crunch that will only worsen as more vehicles crowd roads while consuming less gasoline.

To confront the looming shortfalls, transportation agencies are trying to develop new revenue streams.  Among the possible options is the vehicle miles traveled (VMT) tax, which has been popular but controversial.  The justification behind the VMT tax is that the more miles a motorist drives, the more he or she should contribute to road maintenance and development.  Administering the tax, though, requires tracking mileage driven, fueling concerns over invasions of privacy.

Essentially a VMT tax is like paying a toll, except the tolling becomes more prevalent.  In England, members of parliament are advocating expanding road tolls as a solution to the estimated $3.2 billion loss in revenue due to decreased gasoline and diesel sales.  Unfortunately for motorists and governments, toll booths cannot be placed on all roads cost-effectively, and their presence increases traffic congestion.

Therefore, VMT taxes will most likely work through in vehicle devices (i.e., virtual toll booths) that track VMT through GPS and vehicle to infrastructure (V2X) technologies.  The adoption of GPS and V2X technologies will make payment seamless for the motorist, and give state and city governing agencies the ability to develop dynamic pricing schemes that not only fund road maintenance, but also can be used to manage traffic congestion.  Again, the problem with this scenario is that it means governing agencies will have to track privately owned vehicles.

Despite these concerns, transportation agencies in Minnesota, Portland, Washington D.C., and at the University of Iowa are testing VMT tax simulations, examining everything from participant reaction to congestion mitigation.  The University of Iowa study showed that, though a majority of participants were at first wary of the program, once they had experienced the actual ease of the system, a majority (roughly 70%) left the trial with a positive feeling toward the VMT tax.  In Portland, a dynamic pricing scheme showed a 22% drop in VMT at peak hours.

Opponents of these schemes will have to come up with better solutions to manage congestion and fund road maintenance.  A worst case scenario unfolded in China early this month, when the government suspended highway tolls for the Golden Week holiday; the resulting traffic congestion has been blamed for 794 deaths.

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