More vehicles throng U.S. roads each year, expansion necessary to support them and with less money to fund road repairs. The root of the problem is that road construction funds are largely derived from taxes on gasoline and diesel fuel, and U.S. consumption of both is declining and will continue to decline. The increasing fuel economy of new vehicles combined with rising penetrations of alternative fuel vehicles (AFVs) is having a marked impact on U.S. fuel demand.
In the upcoming report Global Fuel Consumption, Navigant Research forecasts that liquid fuels (gasoline, diesel, and biofuels) consumed by U.S. vehicles will decrease from approximately 160 billion gallons in 2014 to around 104 billion gallons in 2035. Meanwhile, forecasts from the Navigant Research reports Light Duty Vehicles and Medium and Heavy Duty Vehicles indicate that the U.S. vehicle fleet will grow from approximately 250 million to nearly 270 million in 2027 before beginning a slow decline.
More Per Gallon
If the status quo funding mechanism is maintained, annual federal gasoline and diesel tax revenue will decline from current levels of about $30 billion to near $20 billion in 2035. Meanwhile, over the same time, the fleet of vehicles in use will grow by 10 million. However, in the near term, the federal Highway Trust Fund and Mass Transit Fund are headed for insolvency before the end of the year.
A number of short-term funding options have been proposed that will likely push a decision on a long-term solution out past the November mid-term elections. However, one long-term solution emerged last month from two U.S. senators who proposed raising the federal gasoline and diesel tax by $0.06 per gallon over 2 years and then indexing the tax to inflation for following years. The tax has been stagnant since 1993, at $.184/gallon of gasoline and $.244/gallon of diesel. Raising it would probably be the easiest long-term solution to implement, since the machinery for tax collection is already in place.
U.S. Federal Gasoline/Diesel Tax Revenue and Vehicles in Use, United States: 2014-2035
(Source: Navigant Research)
What this proposal has in ease of implementation, though, it lacks in political appeal and fairness. Taxes are a bitter pill for any Republican member to swallow, and pushing through a hike on gasoline and diesel, no matter how small or sensible, is likely to be impossible. Additionally, as the tax stands now and the proposal will maintain, motorists who drive newer fuel efficient vehicles pay less tax, and those who drive AFVs pay no tax per mile driven, despite that they are using the same roads as owners of less fuel efficient conventional vehicles who bear more of the tax burden. As the tax was designed to make those who use the road pay for the road, the above scenario is an unintended consequence to the advantage of alternative fuel and fuel efficient vehicle owners.
Dollars Per Mile
In early 2009, Secretary of Transportation Ray LaHood recommended that the federal government should look into a vehicle miles traveled (VMT) tax. The VMT tax would clock vehicle owners’ mileage and then tax them on a per-mile basis. While this solution would not be easy to implement, it would be a fair way of collecting taxes in line with the original purpose of federal gasoline and diesel taxes. It could also be used as a tool to manage traffic along specifically congested corridors.
Despite the suitability of a VMT tax, it is unlikely it will emerge as a legitimate policy option in the near term, due to a lack of political support and a tested method for implementation. Rather, owners of older conventional vehicles will likely pay more at the pump – or traffic is only going to get worse.
Tags: Clean Transportation, Finance & Investing, Policy & Regulation, Smart Transportation Program
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