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.