Experts Say LaHood Tax Plan Has Merit

Secretary of Transportation Ray LaHood (dot.gov)

A controversial proposal to shore up federal transportation funds has set off a firestorm in Washington, with a high-profile disagreement between the transportation secretary and the White House leaving the nation’s strategy for combating an impending highway budget shortfall in doubt.

In an interview with the Associated Press last Thursday, Secretary of Transportation Ray LaHood proposed a vehicle miles traveled tax, which would charge motorists for each mile driven rather than fuel consumed, as an alternative to a higher gas tax. He called it a way of “thinking outside the box on how we fund our infrastructure in America.”

Illustration by: Matt Mahurin

The White House quickly shot down the proposal. In his daily press briefing Friday, White House Press Secretary Robert Gibbs said bluntly that the tax “is not and will not be the policy of the Obama administration.” A Transportation Department spokesperson, who asked to remain anonymous, clarified the discrepancy to TWI on Monday: “The Obama administration is not advocating a VMT [vehicle miles traveled] tax. In the interview with the AP, Secretary LaHood was simply stating a spectrum of ideas available for financing transportation infrastructure in the future.”

Still, the mileage tax remains on the table as a potential long-term solution to the revenue shortage, and LaHood’s apparently unilateral proposal triggered a flurry of debate on the merits of the tax. A Washington Post editorial on Monday came out strongly in favor of the plan, while on the same day a piece in the Baltimore Sun criticized it as the “height of stupidity” and other publications called it “impossible to administer” and “far from a ‘green’ policy.” Among industry leaders, the president and CEO of AAA praised the plan, while the CEO of Federal Express called it “ill-advised” and unfair to residents of rural states.

Although most of the media coverage has focused on the administration’s rejection of LaHood’s proposal and the tax’s pitfalls, a number of experts, backed up by a successful pilot program in Oregon, maintain that a mileage tax is a sound policy to reverse the highway budget shortfall without endangering environmental incentives or creating excessive logistical difficulties.

The discussion of alternatives to the gas tax comes at a critical time. On Monday, House Appropriations Transportation Subcommittee Chairman John Olver (D-Mass.) announced that the Highway Trust Fund, which provides for the maintenance of America’s highways and bridges, will run out of money by the end of September. The fund relies mostly on revenue from the gas tax, and according to Olver, it is headed for a deficit as Americans cut back on their fuel usage.

The Treasury Department has projected a $3.2 billion shortfall for the fund in the fiscal year 2009. Congress kept the fund solvent last fall with an $8 billion emergency spending bill, and while a similar cash infusion would help now, other solutions are needed in the long run to prop up what Olver called a “severely underfunded” program.

A mileage tax would be one possible route. Supporters of the mileage tax point to the success of a pilot program in Oregon, which demonstrated the viability of such a tax as a steady and practical long-term source of revenue. According to a November 2007 report by the Oregon Department of Transportation, the program was initiated amid fears that as more people started driving hybrids and cars that run on alternative fuel sources, “Oregon’s road system would be in jeopardy as the gasoline tax revenues necessary to preserve, maintain and modernize the system slowly but steadily drained away.”

The experiment began in April 2006 and included 285 volunteer vehicles and two gas stations. The cars were outfitted with mileage-calculating GPS devices, and the tax was paid automatically at the specified gas pumps, just like a standard gas tax.

The 2007 report declared the trial a success. Despite the limited scope of the program, participants found it fair and convenient, and 91 percent indicated that they would be open to a mileage tax if enacted statewide. Only three participants had privacy concerns, although the report conceded a “trade-off between privacy and information stored for enforcement and dispute resolution.”

Developing, manufacturing and installing each GPS device in the pilot cost $603 per vehicle, but the report estimates that if they are produced on a larger scale, the cost will be under $100 per vehicle. Likewise, the state spent $78,000 to replace some gas pumps, but it will require gas stations to use compatible systems if the mileage tax is enacted statewide. At 1.2 cents per mile, an average driver would currently pay about the same amount as under a gas tax. At first the state would break even as tax revenue recouped costs to initiate the program, but “after the initial start-up period, the mileage fee implemented statewide would begin to generate more revenue than the [standard] gas tax would be expected to generate since the gas tax erodes because of improvements in vehicle fuel efficiency, while the mileage tax does not,” according to the report.

The Oregon Department of Transportation also suggested that in order to avoid the expense of retrofitting all vehicles, the mileage tax could be phased in, with new vehicles paying the mileage tax while older ones continued to pay a gas tax.

After the success of the Oregon pilot, other states have begun to consider a mileage tax. Idaho, North Carolina, Rhode Island and Massachusetts are all debating some form of the tax, although the proposals have faced criticism.

Environmental advocates point out that innovation in green transportation policy tends to happen first on the state level. Nearly a century before experimenting with the mileage tax, Oregon pioneered the first gas tax in 1919, and all other states followed suit in the next decade. After the success on the state taxes, a national gas tax was put in place in 1932. “Traditionally the states have a little more flexibility,” explained Eli Hopson, the Washington representative for the Union of Concerned Scientists’ Clean Vehicles Program.

“The states have been leading the way on environmentally sound transportation approaches,” agreed Daniel Becker, director of the Safe Climate Campaign, an environmental advocacy group. “I think we’ll see more of this kind of [mileage tax] approach in states.”

Still, not all analysts believe that a mileage tax would be environmentally friendly. A chief criticism of the tax is that it would serve as a disincentive to purchase fuel-efficient vehicles. A high gas tax, in place in much of Europe and elsewhere, discourages people from driving gas-guzzling SUVs and pickups, which not only release higher volumes of greenhouse gases into the atmosphere, but also do more damage to roadways than smaller, lighter cars. A tax based purely on mileage, on the other hand, does not distinguish between high- and low-efficiency vehicles. According to Gilbert Metcalf, a Tufts University economist who specializes in energy issues, a mileage tax would “make it more expensive for the fuel-efficient cars, because they have the upfront expense” of a higher price tag at the dealership.

But Deron Lovaas, the federal transportation policy director of the Natural Resouces Defense Council, dismissed the notion that a move away from the gas tax would slow the trend toward hybrids and other energy-savers. “There’s no doubt that the gasoline tax provides an incentive for the purchase of more efficient vehicles, but let’s be honest, it’s a modest incentive at best,” he explained. “Gasoline taxes are in the single digits as far as the percentage of money you pay at the pump.” The gas tax is far outweighed by fluctuations in the price of crude oil, he noted.

To address the issue of incentives, some analysts advocate a mileage tax that takes fuel efficiency and other factors into account. By installing a GPS chip in every vehicle, Lovaas argues that regulators could use a “sliding scale” to charge drivers more for using larger vehicles or traveling on busy roads during peak hours. Monitoring of this sort, however, has raised privacy concerns, since it would allow a driver’s movements to be tracked.

Again, Lovaas is unfazed by this line of criticism. “Anyone who has a cellphone on their person has traded away a lot more privacy than you would lose through a program that had data collection in vehicles,” he said, adding, “By limiting the amount of data collected and encrypting that data, you can trump privacy concerns.”

In spite of the arguments in favor of a mileage tax, it appears that it will not be implemented in the short term, given Gibbs’ strong statement to that effect. It is clear, however, that something must be done to address the coming Highway Trust Fund deficit. The federal gas tax has not been raised since 1993, although inflation has led to higher maintenance costs. Increasing the tax is one possible solution, but President Obama has spoken out against “putting additional burdens on American families” with a higher gas tax.

The administration will continue to explore its options for raising additional infrastructure revenue, including new tolls and public-private partnerships, according to the Department of Transportation spokesperson. In the meantime, if LaHood has another proposal to unveil to the press, he might want to run it by the White House first.