U.S. Lawmakers Eye EV Taxes, Fees as Gas Tax Revenue Drops on Fuel Efficiency Gains
June 2, 2014 5:32 PM
American lawmakers can't make up their mind about how best to meddle in the market
have long been a stable source of revenue for states. In Feb. 1919 Oregon introduced
the first gas tax
-- $0.039 USD/gallon ($0.53 USD/gallon in 2014 dollars). Since then, every other state has jumped onboard. Average rates have remained relatively unchanged, at around $0.315 USD/gallon, on average (state only). At the federal level a smaller gas tax accounts for $25B USD in revenue -- 60 percent of which goes to federal highways, and 40 percent of which goes to federal budget earmarks (a notorious source of corruption). The federal government in 1993 raised this tax to $0.184 USD/gallon in an effort to balance the budget and
boost fuel efficiency
Today you wind up paying, on average, roughly half a dollar in taxes to your state and federal government per gallon of fuel you buy.
But the federal government is worried. After
pushing so hard with ambitious Corporate Average Fuel Economy (CAFE) standard
, the government is now wondering if it went to far, as
soaring fuel economy
sinks state tax revenues.
Vehicles like the Ford Fiesta can average 45 mpg on the highway even without hybrid tech
Kristina Egan, the director of
Transportation for Massachusetts
, is among those concerned. Her group promotes
large public transit projects
, which are highly dependent on state and federal dollars. She comments:
We are going to continue to rely on the gas tax for quite a while to maintain the safety of our roads and bridges. But it is really important for us to start exploring sources to supplement the gas tax as cars become more fuel-efficient.
Between this year and 2040, annual sales of hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEV), and battery electric vehicles (BEVs) are expected to double in the New England area, according to projections by the
U.S. Energy Information Administration
The effects of that increase have already been felt. A Dec. 2013 report by the
U.S. Environmental Protection Agency
(EPA) brought bittersweet news. Between 2004 and 2012, high oil prices and federal regulation helped to increase the average fuel economy of American vehicles by
. The downside, of course, is that effectively amounts to a 22 percent decline in tax revenue.
President Obama's "test drive" of a Chevrolet Volt plug-in hybrid back in 2010. [Image Source: AP]
Jeffrey Mullan, a former Obama administration Secretary of the
U.S. Department of Transportation
(DOT) between 2009 and 2012, says that states are eyeing tolls to restore revenues. He comments:
We need to develop a new proxy, and for me, the easiest and most useful option — and the one users are more familiar with — is tolling. I predict we will see more tolling as a solution — partly because people are familiar with it, but also because states are beginning to take matters into their own hands. They’re relying less on federal resources to finance their own programs.
The Massachusetts and Chicago turnpikes are among the most highly trafficked highways to feature high tolls. While critics fear that increasing tolls and rolling back restrictions on interstate tolling could raise the cost of products -- due to higher truck delivery costs -- the movement has some high-profile backers. Last month, President Barack Obama
joined the list of supporters
for rolling back federal restrictions on interstate tolling.
If tolling is the Democratic National Party's answer to falling gas tax revenues, fees on EVs and hybrids is another prospect being explored by the Republican National Party. Massachusetts
State Rep. Bradley H. Jones, Jr.
(R), introduced an amendment to a bill which would have
charged an additional $100 USD registration fee
[PDF] on electric vehicles. The amendment was struck down, as even Rep. Jones' party colleagues were skittish about appearing to punitive towards "green" vehicles in an election year.
Some have called for taking on extra fees for electric vehicles like the Tesla Model S
Rep. Jones defends the plan, though, calling it a natural development, explaining:
That person who switches to an all-electronic vehicle, they’re paying nothing for the benefit of the upkeep, maintenance, and filling of potholes on the roads. The issue is really one of equity. Eventually, you’ve got to have that discussion. If everybody ultimately switches over to electric cars, what would you do?
Barbara Anderson, the executive director of Marblehead, Mass. advocacy
Citizens for Limited Taxation
, was moderately supportive of the idea despite the fact that it represented more regulation and fees -- something her group typically opposes. She states:
I think there’s a balance you have to strike. We want to have an incentive for people to buy cleaner cars. But we don’t want that incentive to be so much that only people who are using gas are paying for roads and bridges.
Some states are going for a more overt option --
simply increasing gas taxes
. But that raises the risk of a backlash. In Massachusetts, the gas tax was raised for the first time in two decades from $0.21 USD/gallon to $0.24 USD/gallon. The hike led to much public outcry. Some have advocated scrapping the gas tax entirely. A local petition gathered 100,000 signatures -- enough to put the question on the ballot for Massachusetts’ voters this fall. Now Massachusetts state officials have to deal with the possibility that they could soon have no gas taxes, losing what was before the increase a $677M USD revenue source.
[Image Source: Ocala Post]
A final solution that some Republicans and Democrats are considering as a way to "Trojan horse" EV taxes into the system is to
offer mileage taxes
. Such taxes could still target vehicles like hybrids, and could also charge gas vehicles at a high rate, when all the numbers are crunched.
Oregon is on the eve of a trial program
with 5,000 volunteers whose cars will be
GPS-tracked in order to calculate an annual tax bill
. The volunteer test kicks off next year.
Mr. Mullan isn't so sure that idea would work, though. He warns:
The reaction is often, 'Why do I have to pay more? Don’t punish me.' New things are difficult to implement, especially when people are just not 100 percent certain of it.
By the sound of it no one can quite agree on how to handle the revenue crisis created by rising fuel economy. Or in other words, this has been another federal edition of "be careful what you wish for."
"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
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