Necessary Roughness

CBS News is running a story about California and other states pondering the replacement of their gasoline tax with a tax-by-the-mile charge. The story centers on a college student who recently bought a hybrid, cutting $300 a month from fuel costs stemming from his 2,000 mile a month commute.

One might think that the purchase of a fuel-efficient car would earn kudos from liberals singing the virtues of saving the environment, but instead our college student could be set up to get hammered because other liberals aren’t getting enough revenue from him and other Californians. In addition to the extra cost incurred by the capital expense of buying a fuel-efficient car, if states decide to switch to tax-by-the-mile, he is no longer saving as much money at the pump. Oops.

This concept has good and bad sides. The positive is that, if the states do indeed replace the gas tax with this system, the cost of the roads is being paid for by the users of the road. The gasoline tax follows the “benefits received” axiom of tax fairness to a lesser degree: hybrids use significantly less fuel per mile of road driven, and not all fuel is used for driving. Some states like Oklahoma try to help farmers, oilfield service drivers, and others by charging less tax for “No. 2 Diesel”, fuel that is used for farm equipment, engines driving oilfield pumps, and other off-road equipment. This No. 2 Diesel is dyed and stored separately—production expense—so that if dye is found in a car’s gas tank, fines are assessed. Gas would be cheaper because of less tax and because of less effort in the production and storage of fuel. With the by-mile system, you pay for the road if you use it. If road maintenance costs go up, it’s easy to raise the tax without many unintended economic side effects.

The unpleasant news comes from the implementation of the system. The person is charged when the car is filled up, so the information from the odometer has to be transmitted to the taxing authority at that point. I assume that the gas station would have to receive that information to assess the tax. How hard would it be to wrap the transmitter of the odometer reading in foil, jamming it? What about the cost to create and install the transmitters in the cars as well as the receivers in the gas stations? That’s going to be a nice charge to the consumer. If this information is indeed sent by radio, how do gas station receivers ensure that they are receiving the correct information from the correct vehicles? The transmitters would have to carry identification information as well, and now someone knows where you’re at. Do cars from other states that don’t mandate the tag get off tax-free? What if someone borrows your car? Today they pay the gas tax in refueling your car, but in this system you’re assessed the tax instead of the borrower.

The feature of raising rates during rush hour is particularly questionable. Suppose there are four hours in the day (two morning, two evening, and when it comes to Houston, I’m deliberately underestimating) where the volume justifies a rush hour tax. The rush hour tax is punitive. Suppose further that to avoid the tax, people drive an hour before and after the rush time, and the volume averages out lower among the 8 hours of semi-rush. What legislator, especially a city one, would not want to extend the rush time to the 8 hours?

Personally, I would prefer the turnpike system for tying revenue to cost. Oklahoma, Kansas, Texas, and other states have radio transmitter tags that transmit an account number to a receiver in toll booths. In Oklahoma, the system is fast enough to flash a sign a second later down the road when the tag owner has a low balance. In Houston, it is generally $1 per turnpike station if you have the tag, and $1.25 if you pass through a station with just cash. Unfortunately, there are no tags for rental car users so I have to use cash on business trips.

I know it wouldn’t calculate the cost for every single mile that I would drive, but the road cost could be built into the turnpike fee, stalkers wouldn’t find you at the gas station, and the cost of equipment isn’t prohibitive. Finally, a proper turnpike system would enable states not to depend on federal highway funds, greatly increasing their power to resist extraconstitutional federal mandates such as speed limits and things much worse.

As for our college student? If he figures that the reduced savings under the lower gas tax won’t pay for his more expensive car, he may have to sell the car before the gas price drops.