Tuesday, July 28, 2015

Gas Tax May Be a Simple and Good Enough Road Usage Charge

Gas Tax May Be a Simple and Good Enough Road Usage Charge

US road maintenance is underfunded. Unfortunately, current politics does not offer any sustainable funding ideas either. Instead, we hear about various one time patches like playing with custom tariffs or selling strategic oil reserves.

A good funding mechanism is based on the following principles:

  1. It creates a steady income.
  2. The Income grows and falls according to the road maintenance needs. This means it is related to the total driving mileage.
  3. The funding burden is closely associated with individual road usage, in particular the damage one causes to the road structures when driving.
  4. The mechanism is largely inflation-proof and does not require frequent political interference.

I-110 in Los Angeles
Freeways permit fast uninterrupted travel through dense urban environments. But they are not cheap. I-110 in LA.
By Adrian104 [Public domain], via Wikimedia Commons

In recent years we have seen an increased interest for "road usage charge", a user fee that depends on the actual driving mileage. Indeed, modern technology (currently tested in Oregon) allows to determine the exact mileage on different types of roads, and to send the driver the bill afterwards. Here I argue that we do not have to wait for the a technology to mature, as old-fashioned gas tax may serve as a good substitute for a smarter driving distance fee. I solely focus on road maintenance funding, and ignore congestion, pollution, and climate issues. Note that from this perspective there is no difference between fossil fuel, biofuel, and electric cars.


Two arguments strongly favor gas tax over alternative funding mechanisms: it's simplicity and it's focus on road users. The main objections are related to it's impact on economy, and the fact that it is less than perfect measure of actual road usage.

  • Gas tax is simple to introduce, collect and pay. First, the direct payments are done by big oil market operators who can easily handle a rather minor additional administrative burden. Second, most governments already collect it, hence the additional administrative burden would be even smaller. Third, such "pay-at-pump" scheme is the simplest imaginable tax for motorists. You pay for your gas and that's it.

    This contrasts to the proposed distance charge which is to be payed individually by millions of drivers. Hence the aggregated administrative burden for both private actors and public administrators is most likely higher. The distance tax must also be payed monthly or yearly, based on the actual driving, in a similar fashion as we currently do with the electricity bills. This also means the drivers have to keep some funds available for the tax payments later.

  • Gas tax is payed according to road usage—the more you drive, the more you pay. Unfortunately, this correspondence is less than perfect. Cars come in different fuel economy and size and stress the roads differently. This is potentially the main objection against funding roads solely by gas tax.

    Heavy truck
    Heavy transport stresses the roads substantially more than small cars. Although trucks burn more fuel than cars, the gas tax may not compensate for the additional stress on roads. Here weight-dependent usage charge may have an advantage.
    By bilbobagweed (formby) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

    But save the road usage charge, gas consumption is still far closer indicator of individual "road consumption" than any other alternative, such as income or sales tax. If gas tax is too crude a measure, how on earth can sales tax be a better one? But sales tax is widely used for funding transportation projects.

  • Gas tax is often claimed to be a burden to the economy. But the picture is more complex. Sure, taxes hurt, but I don't see why should gas tax hurt more than the other taxes, in particular business and payroll taxes. If we introduce it in revenue neutral way, i.e. we lower the other taxes by exactly the same amount as we rise the gas tax, it amounts to redistributing the tax burden from the rest of the economy to large gas users. It is not immediately clear what are the economic implications. Transport intensive sectors will probably lose (but it also depends on what happens with road quality and congestion) while "human-intensive" sectors win from lower income tax. This includes technology companies that rely on a large well-payed workforce. I do not see the effect being much different from that of a better targeted road usage fee.

  • Inflation diminishes the value of both gas tax and road usage charge in a similar way. Unless inflation-indexed, regular political decisions are needed to rise these accordingly. The usage charge possesses a clear advantage here as it does not depend on the vehicles' fuel economy. Gas tax must be adjusted both for inflation and fuel economy, usage charge only for inflation.

  • Finally, many people may dislike the idea of government knowing exactly where and how much we drive. And the corresponding technology itself is not safe either—the ways to screw such meters will probably advance as well.


We do not have to wait until a better technology solves the road funding problems. It may never arrive. Meanwhile, gas tax is a simple and good enough road usage fee. The problem is in politics, not in technology.

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