Is Oregon’s Proposed Gas Tax the Future U.S. Gas Tax?

October 25, 2013 — Leave a comment

States are looking for more revenue, and Oregon has created a controversial revenue boosting plan which will tax resident motorists for the number of miles they drive as opposed to the amount of fuel they consume.

As seen in the graphic above, drivers will pay a combined state and federal gas tax every time they pump a gallon of gas for their car. Americans are driving less and vehicles are becoming more fuel-efficient. The problem for lawmakers is that the existing per-gallon gas tax has hit a point of diminishing returns: states are not making much revenue from the gas tax anymore.

To understand the effect, USA Today notes that the “Federal Highway Trust Fund, which gives money to states for highway construction and repairs, for example, has needed a congressional bailout four times since 2009, in part the result of no federal gas tax increase in the past 20 years.”

Why Oregon?

President Obama wants new vehicles to get 54.5 miles per gallon (mpg) by 2025, up from the average now of 23.5 mpg. Gas taxes have not kept up with inflation, so other states could look to Oregon’s model to revamp their own gas taxes. The state’s new program would create a vehicle miles traveled tax (VMT) as opposed to the current per-gallon tax.

“Per-mile charges are the most high-profile and discussed possible alternative to the gas tax,” said Jaime Rall, a transportation policy specialist at the National Conference of State Legislatures. “There’s no question about it: States want to know if this is going to be a viable way to fund transportation into the future.”

Eighteen states have proposed the same mileage tax, but only Oregon has created such an expansive program which will charge their resident drivers. The Oregon Department of Transportation also has previous experience in calculating mileage taxes. Along with New York, New Mexico, and Kentucky, Oregon charges trucks taxes based on their weight and the amount of miles they drive.

How will it work?

In 2015, the program would start by only using 5,000 volunteers: only 3,000 of the 5,000 slots will go to cars that travel 22 miles per gallon of gas or fewer. The remaining spots are for more efficient vehicles.

010913TB_Mileage.jpg?s=12Private companies would offer these volunteers with several options to keep track of their mileage. The basic mileage meter would be hooked up to the vehicle’s odometer; advanced GPS devices will make sure that drivers are not charged for out-of-state trips, and will track how far cars travel and the locations where they go. These GPS mileage meters would also be linked to cars’ fuel gauges to measure and to report how much gas motorists use.

The volunteers would still pay the current per-gallon gas tax; however, the state would refund these drivers the difference between the per-gallon tax and the per-mile tax.

Will drivers be paying less?

In addition to Oregon, seventeen other states have done studies on the efficacy of this tax model. A federal government-funded study at the University of Iowa provided statistics that show that Oregon’s gas tax is now 30 cents a gallon. The mileage tax under the legislation would be 1.5 cents a gallon.

What are some of the opposition arguments?

“It would force us to surrender our privacy,” said Mark Perry, a scholar with the American Enterprise Institute, in McClatchy Newspapers. “Each day more and more of us are required to tell government agencies more and more about ourselves. Do we really want the government collecting data about driving habits?”

When the state legislature debated the new gas tax, residents continuously expressed their privacy concerns. Basic devices will only record the mileage and will not be able to track vehicle locations. However, advanced GPS devices and smartphone apps will track motorists and reward motorists who avoid congested roads and those who drive during off-peak hours. Many do not like the idea of having a Big Brother-type device attached to their car.

The state has proposed new legislation which will limit the people who can see the information, and it will require the state and private entities to destroy the information thirty days after billing the driver.

Owners, of newer cars with great mpg and alternative energy cars, will not be eagerly running to become volunteers in this program since they would have to pay more with the new tax. Though the VMT is on a volunteer basis for now, policy wonks believe that the tax will most likely apply to every resident soon enough.

Critics have also noted that state governments calculating the tax per mile and mailing bills will be another cost. Similarly, a 2012 Government Accountability Office (GAO) report stated that the costs of a GPS system for 230 million U.S. passenger vehicles “is likely to greatly exceed the costs of collecting fuel taxes.” GAO also noted that the average GPS costs $200. People who use the most gas-efficient vehicles could pay just as much as those owning gas-guzzlers because of these other costs.

To reduce some costs, the state hopes that smartphone software developers can create an application which will easily track the mpg and also, automatically turn off the meter when residents drive on private roadways or out of state.

Oregon might be the guinea pig for now, but many states will be watching to see if the VMT works. Current per-gallon gas taxes have not adjusted with inflation, and cars continue to become more fuel-efficient. This new tax model could be a realistic revenue model and a taste for our country’s future gas tax as well.

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