Transportation Secretary Pete Buttigieg proposed a vehicle mileage tax on Friday as a way to help pay for President Joe Biden’s expected multitrillion-dollar infrastructure proposal.
“So I think that shows a lot of promise,” Buttigieg said when asked by CNBC’s Kayla Tausche about a mileage-based tax. “If we believe in that so-called ‘user-pays principle,’ the idea that part of how we pay for roads is you pay based on how much you drive. The gas tax used to be the obvious way to do it. It’s not anymore.”
Transportation Secretary Pete Buttigieg says taxing drivers by the mile “shows a lot of promise” and could be a way to fund a big infrastructure overhaul. pic.twitter.com/fkI5nWt7sr
— The Recount (@therecount) March 26, 2021
As the world shifts to more eco-friendly transportation options such as electric cars, tax revenues are declining since users don’t rely on gas, according to the Tax Foundation. (RELATED: Biden Reportedly Preparing $3 Trillion Spending Package)
The gas tax has been used to generate revenue to fund the highway system, but revenues have slowly decreased, according to the Tax Foundation. In 1994, a passenger car that averaged 20.7 miles per gallon paid roughly 3.2 cents in state and federal taxes. Meanwhile, a passenger car averaging 24.4 miles per gallon in 2018 only paid 2.1 cents, according to the Tax Foundation.
There is a roughly $16 billion deficit in federal highway funding, according to Bloomberg. The Highway Trust Fund, which pays for roads and transit systems, gets most of its funding through the federal gas tax. The federal gas tax has similarly not been raised since 1993 and rests at 18.4 cents per gallon, according to the report. Revenues generated top $34 billion per year even though federal spending far exceeds that, according to the report.
One way to fight the effects of decreasing revenues is the mileage-based tax.
“People are talking about it more than have in the past, which is a good thing,” Executive Director of the American Association of State Highway and Transportation Officials Jim Tymon said, according to Bloomberg. “The vehicle fleet is trending toward electrification and the Biden Administration is going to prioritize this.”
“That’s going to force their hands a little bit because you’re not going to be able to collect the same amount of revenue as you do from gas and diesel vehicles.”
The tax could be levied in two ways, according to the Tax Foundation. There could be a flat tax or a tax varied depending on different locations. An odometer reading conducted once a year would be used to calculate how much is owed. Cars with different weights would have varied taxes, according to the report. Pilot programs allow participants to report their odometer readings electronically or in person and participants can use smartphone apps or a plug-in device to record mileage, according to Bloomberg.
The House passed a bill last year that would have created a federal pilot program to test the tax out, according to The Washington Post. The Treasury Department would impose a fee equal to the total amount collected in gas taxes and then divide that number by the miles driven by vehicles.
For example, if an individual drove 12,000 miles in one year and their vehicle gets 22 miles per gallon, they would pay $5.24 more under the tax, according to the report.
Both Utah and Oregon have launched pilot programs to test the mileage-based tax.
Oregon’s program is voluntary, with participants paying 1.8 cents for each mile they drive. The money goes directly into the State Highway Fund, according to OreGo. Participants can receive tax credits and are eligible for reduced registration fees.
Utah runs a similar program, the Road Usage Charge Program, which is voluntary for electric and hybrid vehicle owners. Participants can either pay a flat fee or enroll in the program and pay for road usage based on how many miles they drive. The fee is maxed once a participant reaches the set flat fee.