Tax by the Mile

In a previous post, "Top Ten States Issues", the National Conference of Legislatures mentions several states that are considering replacing the gas tax with a per mile vehicle fee rather than raising taxes to pay for roads and transit. Basically, instead of paying the 51-cents-per-gallon fuel tax you pay at the pump here in Hawaii, you would pay around one cent per mile traveled.

Several states, including Oregon, North Carolina, and Idaho, are considering new road revenue systems primarily because of the entrance of more fuel-efficient cars into the marketplace. The basic idea behind the gas tax was that if you use the roads, you should pay for them. So if you drove more, you paid more taxes at the pump. However, with more people driving fuel-efficient cars, the collection of gas tax has been – and will become even more – disproportionate to how often a vehicle uses roads and highways. They're great for the environment, energy efficiency and a number of residents' bank accounts, but not for sustaining state transportation and infrastructure needs. In short, state gas tax hasn't been fair for awhile.

With that known, in 2001, Oregon's Legislature began studying alternatives to the fuel charge. A task force determined that switching to a pay-by-the-mile system would be the most logical and natural replacement. Taxpayers pay for what they use. The VMT would be a fairer tax collection mechanism and would not erode revenue collection due to increases in fuel-efficient cars on the road.

The state recently concluded a pilot program which implemented a vehicle miles traveled tax (VMT). The program used three control groups: drivers who pay VMT tax, drivers who pay state fuel tax, and rush hour drivers who paid more for driving in congestion zones but much less for regular travel. Volunteers drove vehicles installed with simplified GPS devices and odometers to track miles traveled in state. (Device sensors turn off when traveling out of state). At the pump, a mileage reader would scan the vehicle device and charge drivers 1.2 cents per mile used since the last fill up; they did not pay the 24-cents-a-gallon state gas tax.

The Oregon project concluded that a mileage fee:

raises substantial revenue, easy to collect, easy to administer, easy to pay, minimal evasion potential, protects privacy, minimal burden on business, directly connected to highway use, no revenue erosion for fuel efficiency

Would you prefer to pay taxes by the mile than at the pump in Hawaii? Would it work? Let us know what you're thinking.

*Every gallon of gas includes a Federal and State excise tax. In Hawaii, we pay a 4 percent sales tax, county tax and a 0.1 environmental response tax, which totals 51 cpg on gasoline and 71 cpg on diesel when combined with the Federal gas tax (18.4 cpg on gas; 24.4 cpg on diesel). These funds have been the primary source of money for highway projects and other transportation and infrastructure needs.

Rep. Caldwell wants more specific answers on petroleum industry profits

House Majority Leader Kirk Caldwell expects the 2008 Legislature to refine the oil monitoring program in order to get to more specific information on petroleum industry profits.

In The Honolulu Advertiser's story about how our gasoline prices would be less today if the gas price cap was still in effect, Caldwell said that we should keep the full price cap in suspension and work on improving the reporting and monitoring system. The Public Utilities Commission (PUC) also recommends not reinstating the gas cap, pursuant to the findings of the PIMAR Annual 2007 Report, just released last Friday. According to the report, the cap would have forced low prices today, but created artificially high prices in the spring.

Here are some pertinent points from the PUC report summary:

• Refinery profit margins are lower than on the Mainland, but dealer and supplier margins, which drive our gas prices higher, are higher than on the mainland.


• Pump prices generally tracked world prices.


• Pump prices aren't caused by "collective" price changes.

Caldwell doesn't think that the report reveals enough detail. He said that it gives us good insight into the oil industry, but we still don't know if the excessive profits are being made or if the system is working fairly.

Waiting for gas prices to drop...

Come July 1, consumers should be looking at a 14-cent drop in gas prices, not the 10-cents discussed while the legislature was in session.

The legislature passed HB1757 which exempts the sale of alcohol fuels, including ethanol -blended gasoline, from the general excise tax at 4.5%. The bill requires that the tax savings be passed on to the consumer. Now that gas prices have risen to over $3.00 per gallon, $3.00 X 4.5% = 13.5 cents. The bill also increases the fuel tax by 1 cent per gallon.

Today, a quick look around Honolulu puts gas prices about $3.30 per gallon. At this price, if the bill were to become law, the cost savings to consumers would be around 13.8 cents. ($3.30 X4.5% = 14.85 cents - 1 cent).

However, as of this date, the Governor has not signed the bill into law.