The Road Towards Implementing a Federal Vehicle Miles Traveled Tax

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Ian Hutcheson
July 24, 2021

Absent from negotiations over infrastructure legislation in recent weeks has been serious consideration of reforming the Highway Trust Fund (HTF) and its dedicated revenue source, the motor vehicle fuel tax. The failure of the gas tax to keep pace with spending on roads has led some to call for replacing it with a vehicle miles traveled (VMT) tax. Proponents say a VMT tax would more effectively account for the wear on roads caused by vehicles, while those wary of the alternative cite concerns over the environment, equity and its complexity.

While many questions surrounding its implementation remain unresolved, the VMT tax is a feasible alternative to replacing the gas tax as the primary means of funding America’s roads. Gradual and concerted movement towards implementing a federal VMT tax beginning with lower-risk approaches and programs at the state level will help to address uncertainty over its feasibility.

Funding Vehicles

Since their inception in the early 20^th century, motor vehicle fuel taxes have been a primary funding source for the nation’s highways. The federal tax was last increased in 1993 to its current rate of 18.4 cents per gallon. Calls for increasing it further are substantiated by projections that the HTF, which finances spending on federal highways and is funded through the gas tax, will be exhausted by the end of 2022.

The inability of the gas tax to fund America’s highways is attributable to increasingly fuel-efficient vehicles and the growing popularity of electric vehicles (EVs). These trends have stimulated discussion of replacing the fuel tax with a VMT tax, which would be assessed on the number of miles a vehicle travels. Despite its potential as an effective and fair form of taxation, the VMT tax suffers from uncertainty over cost-effective and justifiable methods of implementation and administration.

Effective Driving

One of the strengths of the VMT tax as an alternative to the gas tax is that it more effectively and fairly accounts for the activity which causes wear on roads, namely driving. It is more effective in that it is assessed directly on driving, rather than on the proxy of fuel. It is fairer because it can be assessed on all vehicles, regardless of how they are powered.

Increasing the gas tax would help alleviate HTF shortfalls, but the fundamental disconnect between the amount of fuel American drivers consume and the amount of miles they drive will continue to widen as the trend towards EVs continues. While public perceptions on the overall fairness of VMT taxes is mixed, a 2019 survey found that drivers view it as fairer than the gas tax. VMT taxes alone will not make the HTF solvent, but they do represent a more effective and fair system for funding it.  

Assessing Conditions

Much of the uncertainty surrounding VMT taxes stems from how they will be implemented and administered. Periodic odometer readings is a low-cost method of assessment, but it also generates the highest enforcement cost, according to a 2019 study by the Congressional Budget Office (CBO). More sophisticated assessment methods such as the installation of onboard devices would allow efficiencies in administration, but they are also costly and would generate substantial privacy concerns.

The study of VMT taxes is aided by the experiences of other governments, both within the United States and abroad. Four states levy VMT taxes on commercial vehicles, and several states have implemented voluntary programs for passenger vehicles. A number of European countries have administered mandatory commercial vehicle taxes for years. Despite trepidation over how a federal VMT tax would be administered, the lessons learned from other governments can be leveraged to find suitable solutions.

The First Few Miles

Despite its strengths, support for a national VMT tax is far from universal and a clear plan on how it would be implemented has yet to emerge. A measured, but firm approach that starts with lower-risk approaches before tackling more complex ones is a prudent tactic for exploring the feasibility of a federal VMT tax.

The possibility the United States government has looked at most seriously is a tax for commercial vehicles, as studied in the 2019 CBO report. While a VMT tax limited to commercial vehicles is strongly opposed by the trucking industry, it would allow for the testing of more sophisticated assessment methods. Further programs at the state level should be supported by the federal government as a way to trial the tax’s functional challenges. While the fiscal imbalance in the HTF demands action, rushing through a VMT tax could backfire and jeopardize the feasibility of what is still a realistic alternative.

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The outlook in Washington for infrastructure legislation may be changing, but the funding shortfall in the HTF and the inability of the gas tax to correct it remain the same. Before it can be accepted as a core mechanism for funding America’s roads, the VMT tax will need to be tested out in more limited environments. By working through its practical challenges, the benefits of its design can become apparent and the road to implementing a federal VMT tax will be cleared.

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Author: Ian Hutcheson, MPAis a Management & Budget Specialist for the City of Oklahoma City and the President of the ASPA Oklahoma Chapter. He is a 2018 graduate of the Master of Public Administration program at the University of Kansas. Ian’s professional areas of interest include city management, finance and budget, economics, and organizational change. Contact: [email protected]. Twitter: @ihutch01

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