The Taxing Feedback Loop

Midwest governors released a publication showing that they are increasingly in favor of taxing consumers based on mileage rather than on gallons of gasoline sold. These states are seeing lower revenues because the vehicles driven are getting better gas mileage for the amount of miles driven. Since the states are losing gas tax revenues because of higher efficiency vehicles, their solution is to tax based on mileage in addition to the gas tax.

It's a concept that has been floated elsewhere, including in Oregon and Washington. Even the federal government has been contemplating that idea in addition to the gas tax that already drives up the cost of a gallon of gasoline by a significant amount. The National Surface Transportation Infrastructure Financing Commission believes that the mileage tax is the way to go because the amount of spending per mile has dropped since the 1950s (a direct result of higher efficiency motor vehicles).

The government policy has been to push for higher efficiency vehicles, and the unintended consequence is lower revenues as more vehicles on the road turn out to be higher efficiency ones that reduce the overall amount of revenues to the states.

How would the mileage tax system work? The government would mandate the installation of monitors in vehicles that would automatically record the amount of miles driven. Of course, a simpler version could simply require that when a vehicle is registered on an annual or biennial basis, the mileage is recorded and tax paid accordingly on the scale at the time. The tax would hit those people who are forced to drive long distances as part of their jobs, including salespeople and truckers who form the backbone of the transportation delivery industry in the nation.

There is another possibility, which may gain currency despite its effect on surface pollution: toll roads. It's a fee per use, and many major highways in the Northeast already have tolls, including the Pennsylvania Turnpike, Mass. Turnpike, NJ Turnpike, Garden State Parkway, and New York State Thruway. Other states have been eliminating the toll roads because of the traffic and congestion caused by the tolls, but those fees are sure to be enticing to politicians eager for new or increased revenues. It would mean additional bureaucracy and costs for implementation and operation, and the proponents of new/additional tolls would claim that electronic systems like EZ-Pass would alleviate the traffic/congestion/pollution concerns, but not all drivers use EZ-Pass, which means that the traffic caused by toll plazas is inevitable.

If any of this sounds familiar, it should. It's the same with cigarette taxes - cigarettes are bad for you, but if taxes rise, the number of users decreases, lowering overall revenues - and threatening programs like S-CHIP and all the other programs based on cigarette tax revenues. The states are forced to further increase the cigarette taxes, creating a feedback loop of lower revenues and never once considering the impact of such decisions on the fiscal stability of the states.