Pretzel Logic: Taxing Motorists Based on Miles Traveled, Not Gasoline Consumed

Pretzel Logic: Taxing Motorists Based on Miles Traveled, Not Gasoline Consumed

By Scott Doggett, Contributor

In an impressive display of boneheaded thinking, Oregon Governor Ted Kulongoski is hankering to replace the state's gasoline tax with a tax based on miles driven.

Kulongoski wants motorists in the Beaver State to pay 1.2 cents for every mile they drive regardless of whether their rides chug gasoline and spew rivers of greenhouse gas, or run on electricity supplied by happy hamsters spinning wheel-generators.

Under his plan the owner of a 48-mile-per-gallon Toyota Prius would pay the same $1.20 for a 100-mile trip that consumed just a tad over two gallons of gasoline as would the owner of a 15-miles-per-gallon Jeep Grand Cherokee that sucked down almost seven gallons of fuel.

Don't laugh. Officials in North Carolina, Ohio, Pennsylvania, Florida, Georgia, Colorado and Minnesota are of like mind, as are members of  the federal commission tasked with financing the nation's transportation infrastructure.

The reason: Gas taxes used to maintain roads and bridges are shrinking as fuel-sipping cars and trucks are increasingly replacing vehicles with ruinous drinking habits. And motorists who once thought nothing of driving to the Kwik-E-Mart every time an urge for Chunky Monkey arose are giving their wasteful ways second thought.

Together, these actions lowered gasoline consumption and its resultant tax revenues a full 10 percent last year.

In turn, the drop in tax revenues has prodded Kulongoski and others to consider raising the gas tax or to develop other revenue streams, lest they find themselves up to their necks in potholes with no money to fix them. With gas consumption expected to continue its retreat, Kulongoski et al believe it's time to chuck the gas tax and come up with a brand-new, mileage-related tax.

As Adrian Moore, a member of the federal infrastructure commission, succinctly put it the other day, "the gas tax is broken, so any increase in the gas tax is just a Band-Aid."

But a mileage tax?

An Unintended Consequence

It is fair in one respect: cars and trucks tear up the roads by traveling on them, regardless of the type of fuel they use, or how much of it they consume.

But smaller, lighter and more fuel-efficient vehicles are gentler on the highways than are hefty trucks and SUVs, and a mileage tax makes no adjustment for that.

Worse, replacing the gas tax with a mileage tax reduces the cost of gasoline. The effect of that, say industry experts and automakers alike, is less incentive for consumers to buy - and less incentive for carmakers to develop - alternative-fuel and highly fuel-efficient vehicles. 

What this means is that at a time when seemingly everyone has come to appreciate the importance of corralling climate-changing emissions, policy-makers across the U.S. are moving toward lowering gas prices - and unintentionally making fuel-efficient vehicles, which often cost more to purchase than their conventional gasoline-slurping counterparts, less desirable.

"People in Washington understand the potential dynamic if, three or four years down the road, everybody is cranking out highly efficient vehicles and gas is still selling for a buck and a half a gallon," General Motors spokesman Tom Wilkinson said. "There'd be a real mismatch between what people would want to buy and what we have for sale. Not just us, but everybody. You saw that happened  in December."

What happened in December is that sales of hybrid cars and hybrid SUVs plunged 43 percent from the final month of 2007. It was a near repeat of a stupendously disastrous November, when sales of fuel-efficient hybrid vehicles nose-dived 50 percent from a year earlier. Gasoline, which had been at $4 a gallon in the summer, was selling for well under $2 at the end of the year.

Automakers worldwide were hammered, including the leading Japanese carmakers. Honda sold just over 1,000 hybrids in the U.S. last month - a 69 percent decline over November - while December sales of the Prius tumbled 45 percent against November sales despite many dealer incentives to move them.

A hybrid usually costs at least $2,000 more than an identical model with a conventional gasoline-powered engine. If shouldering the extra upfront cost for a hybrid was already a stretch with pricey gasoline, cheap gasoline seems to have made foregoing a hybrid a no-brainer for now.

Jump Out, Jump In

The collapse of the market for hybrids and other gas-sippers came just six months after U.S. fuel prices peaked and people behaved in ways that didn't make any economic sense - for instance, taking a huge loss on a relatively fuel-efficient larger vehicle to get into a somewhat less fuel-efficient smaller vehicle even though the loss in trade-in value would take years to recover.

"If," as GM's Wilkinson recalled, "you were trading in a Toyota Highlander to buy a Toyota Prius, it may take 10 years before you paid back the loss. But it didn't seem to matter. People were just motivated by the fuel economy."

Sadly, consumers paying less than $2 for a gallon of gasoline are nearly as quick to jump back into vehicles with fuel-economy ratings in the teens as they were to jump out them six months ago, when gas cost $4 a gallon. About the only good news on the sales front last month was a year-end hike in truck sales - thanks in large part to lower gas prices.

With the return of $2 gas, the Ford F-Series pickup maintained its spot as America's best-selling vehicle for more than three decades. Its long-held sales crown was threatened earlier in the year as industry truck sales crashed in reaction to gas exceeding $4 a gallon.

To Nigel Gault, chief U.S. economist for IHS Global Insight, the financial-forecasting firm, it makes no sense for a government to lower the cost of gasoline by reducing or removing taxes if it values the development and sales of hybrids, alternative-fuel vehicles and ultra-efficient conventional cars and trucks.

Moreover, the mileage tax does nothing to promote hybrids and other fuel-efficient vehicles, Gault said, because motorists would pay the same per-mile tax irrespective of their vehicles.

"For the motorist, there is clearly less incentive to purchase more fuel-efficient cars," he said. Toyota spokeswoman Jana Hartline, stating the automaker's position regarding a mileage-based tax, said the very same thing.

Oil Down, Gas Tax Up

Instead of replacing the gas tax, Gault said officials should raise it - when the time is right. It's what officials in the United Kingdom have done repeatedly over the years, piling on extra gas taxes every time the price of oil fell.

Consequently, gas taxes in the U.K. rose from pennies to pounds per gallon. In France, people are paying considerably more in gas taxes than they are for the product itself - to the tune of over $5 in gas taxes per gallon.

But in the United States, motorists continue to pay pennies a gallon in fuel tax. Specifically, 18.4 cents in federal tax on each gallon of gasoline they buy, plus another 29 cents on average in combined state and local taxes.

Because those taxes are earmarked for roadwork and transit projects, "we've basically had a 30-year experiment in this country in under-investing in surface transportation infrastructure," said Robert Atkinson, chairman of the federal infrastructure commission.

Some estimates say federal, state and local governments would need to spend about $80 billion per year more than current $31 billion level to begin to reduce congestion, improve roads and expand transit, Atkinson said.

In coming days the commission will recommend that Congress raise the gas tax a dime a gallon. Big deal. If it's approved, it'll mark only the first time in 12 years the tax has been boosted.

Global Insight's Gault, who is from the U.K., said American officials are loathe to raise gas taxes for fear they won't be re-elected. That's certainly been the case in the past.

The Time Is Now

But with Barack Obama about to be sworn in as president in large part due to his green agenda, which includes reducing America's dependence on foreign oil and supporting alternative fuels and fuel-efficient cars, members of Congress just might be willing to vote for a bump in the federal gas tax.

Plus, their constituents are more likely to accept a 10-cent jump for a gallon of gasoline when it's selling for well under $2 a gallon for regular nationwide - as it is now - than they would if gasoline cost $4 or a gallon, said Jesse Toprak, Edmunds.com's executive director of industry analysis.

"I think that if they are going to do anything on the gas tax they should do it soon - before oil prices start creeping back up - because most people won't even notice it much and it can actually generate significant amounts of revenue," he said.

Politicians in California, Massachusetts, New Hampshire and Illinois share that opinion and are introducing bills that would raise their state's gasoline taxes.

Toprak views mileage taxation as a double whammy: Not only would it not encourage people to buy alternate-fuel and fuel-efficient vehicles, it would hurt most of the motorists who already have done that - mainly people with long commutes. Most of those people can't afford to live closer to where they work, and unlike London, Paris and other major metropolises, America's big cities generally don't offer good public-transportation options.

But all of these concerns haven't stopped Oregon from taking solid steps to creating a mileage-based tax - despite the fact Oregon's gas tax hasn't been raised since 1993 and is not indexed to inflation.

The largest step before Governor Kulongoski's pledge to endorse the new tax was a decision several years ago to launch a pilot program that worked like this: Officials equipped 280 vehicles with GPS transponders that communicated wirelessly with fuel pumps at two gas stations in the Portland area. Each time the vehicles filled up, their mileage was recorded and a mileage tax was added to the price of gasoline. The drivers were not charged a gas tax.

Although the GPS devices supposedly did not track the cars' locations in great detail, they could determine when a driver had left certain zones, such as the state of Oregon. And they kept track of the time the driving was done.

James Whitty, the Oregon Department of Transportation employee in charge of the state's effort, said the pilot program proved the mileage-tax plan could work.

A Matter of Privacy

We have no doubt the plan is technologically feasible. But the tracking component raises privacy issues that alone should send Whitty and Kulongoski back to the drawing board.

The vehicle-tracking component would "seem very problematic, particularly to some of the conservative folks out in eastern Oregon," GM's Wilkinson said with a chuckle. "The idea of having the government track their vehicles with a GPS device would probably strike at least some of those people as not a good idea."

The idea reminded him of discussions at GM leading up to the launch of the OnStar in-vehicle security, communications and diagnostics system a decade ago. That system contains a GPS device that allows an OnStar-equipped vehicle to automatically communicate its location to the OnStar service center in the event of an accident.

But even then an OnStar employee won't act on the information until he or she has called the vehicle and received instructions from the customer.

"We understood very early on that we had to bend over backwards to protect the privacy of our customers or they simply wouldn't adopt the system," Wilkinson said.

Think Long-Term

There's snow on roads in many parts of Oregon these days, helping potholes grow as it melts in sunlight, turns to ice at night, then thaws to muddy slush in the morning, and the cycle repeats again and again.

No doubt Kulongoski lays awake each night thinking of such things and worrying about how to pay for road repairs.

Truly, we feel for him.

But we strongly encourage him - and others in government who are looking at the situation through the big end of time's telescope - to shift focus to the disappearing ice caps far to the north and south of him, propose a well-justified gas-tax hike while the getting is good, and forever round-file any notion of basing a road-maintenance tax on miles traveled.

Indeed, any tax proposal that would discourage the development and desirability of electric cars and trucks or vehicles capable of traveling great distances on small quantities of gasoline should be placed in a paper bag, run over by a Tesla Roadster and set on fire.

A mileage-based tax isn't a solution. It's a new problem.

Scott Doggett:  is an AutoObserver.com Associate Editor.