Taxes

Is it time to rethink how we fund our roads?

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I’ve lived in Maine all my life, and I can’t remember a time when winter road conditions were worse than they were last winter. Ruts, frost heaves, and potholes were everywhere, from narrow city streets to state highways. On a stretch of Route 1 not far from my house, drivers slowed to a crawl to navigate the gaping holes in the pavement.

Much of the damage has been repaired since, but road maintenance needs around the state continue to far exceed available funds.

From a policy perspective, the central issue is that improvements in fuel efficiency (the average light-duty vehicle in 2017 was nearly twice as efficient as in 1975) have caused gas tax revenues to stagnate, even as the number of vehicles on our roads continues to grow and maintenance costs escalate. In 2015, 35,000 more vehicles were registered in Maine than in 2003.

As hybrids and electric vehicles expand their foothold in the automobile market in the years ahead, fuel consumption will dwindle further, forcing policymakers to choose between ignoring infrastructure needs and substantially raising the tax rate.

The gas tax has other flaws as well. Although drivers pay more in taxes the more they drive, those costs aren’t directly linked to when they choose to travel or what roads they drive on, so the fuel taxes they pay fail to reflect the true costs of their travel. For example, the gas tax doesn’t distinguish between driving on a quiet, back-country road or a congested city street.

Heavy trucking provides a stark example of how driver costs are not aligned with total system costs. According to Governing Magazine, engineers estimate that a fully-loaded five-axle rig weighing 80,000 pounds causes as much damage to a highway as 5,000 to 10,000 cars. True, truckers pay much higher taxes than other motorists, but they still don’t come close to compensating for the wear-and-tear they cause.

The same logic applies on a smaller scale. Given the exponential relationship between vehicle weight and road deterioration, a large 6,000-pound SUV or pickup truck causes 80 times more pavement damage than a 2,000-pound car. 

Since gas taxes don’t fully capture these realities, drivers don’t face the right incentives to minimize the costs they impose on the rest of us.

Gas taxes are also highly regressive; low-income motorists bear a disproportionately heavy burden. An analysis by the Tax Foundation found that, as a share of income, families earning less than $10,000 per year pay 10 times more in gas taxes than families earning more than $150,000 per year.

Given these flaws in the gas tax, a once-obscure idea may offer a solution: a vehicle-miles-traveled (VMT) tax. 

A VMT tax, as the name suggests, charges motorists based on the distance they travel instead of the amount of fuel they consume. Vehicles would be outfitted with an inexpensive onboard mileage tracker and a computer loaded with price-per-mile data for every road in the state. To protect motorists’ privacy, old data would be deleted after each VMT tax bill is paid. Properly designed, a VMT tax could overcome many of the gas tax’s shortcomings and insulate Highway Fund revenues from future improvements in vehicle fuel efficiency.

Because the VMT tax rate can be adjusted based on vehicle weight, road type, time-of-day, and other parameters to better reflect the actual costs drivers impose on the transportation system, a VMT tax would achieve greater economic efficiency. Higher tax rates on heavy vehicles would encourage truckers to drive on roads that are properly built for large loads and to make fewer trips. Extra charges for driving in congested areas would motivate drivers to be more mindful of when they travel.

In 2016, a study in the Journal of Public Economics found that implementing a federal VMT tax at a level that would boost highway funding by $55 billion per year would increase social welfare by 20 percent compared to an equivalent increase in the gas tax.

Several states have already experimented with VMT taxes, and the outcomes have been encouraging. Oregon conducted two pilot programs in 2006 and 2012 and concluded that the VMT tax is “workable and practical, a genuine alternative to the gasoline tax.”

Replacing the gas tax with a VMT tax doesn’t mean the average motorist will pay more. In fact, by shifting more of the burden onto heavy road users, a VMT tax could deliver financial savings for most Mainers. The point is that a VMT tax is a more efficient, long-term mechanism to raise the infrastructure revenue we need.

One thing’s for sure: We all want to avoid another winter like the last one.

Photo: Joshua Davis | Flickr

About Liam Sigaud

Liam Sigaud is a former policy analyst at The Maine Heritage Policy Center. A native of Rockland, Maine, he holds a B.A. in Biology from the University of Maine at Augusta and has studied policy analysis and economics at the Muskie School of Public Service at the University of Southern Maine. He can be reached by email at liam.sigaud@maine.edu.

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