Electric Vehicles and Gas Tax
Across the United States an average of just over a third of all highway spending comes from a gas tax imposed by the state, with further funding being provided by a federal gas tax. It ranges across states from as low as 4.5 % of funding for highway spending in Alaska to as high as 78% in Indiana. Gas taxes account for over 50 billion dollars in annual revenue for state and local governments with an additional 36 billion in funding from the federal government. The majority of this funding goes towards roadway upkeep.
The Federal government’s gas tax is not indexed to inflation and has not been raised in nearly 30 years. As such, the actual value of the gas tax has been falling for decades as inflation rises. With each passing year the federal government provides less support to the states from the gas tax. The majority of states have likewise failed to keep pace with inflation. This has left some states (which previously had robust highway funding) in dire situations unable to pay for maintenance of the nation’s roadways. With the increasing popularity of electric vehicles and increasing costs to upkeep national infrastructure, the support provided by the gas tax is on track to fall even further.
How can governments replace this critical transportation funding in a world where people are not buying gas? Currently governments get funding from a variety of other user-based systems including tolls and from license fees. Each of these has its own problems. Tolls can make transportation more inaccessible for the poor or create a class-stratified transportation system. In New York, a drive from Albany to Buffalo that does not require tolls takes an extra 45 miles and 60 minutes compared to a tolled route. In North Carolina, a tolled express lane is available with a higher speed limit allowing for people to pay to move faster through the area around Charlotte. In both cases, people are able to pay for advantages on the road. These stratifications help fill in gaps that the faltering gas tax has left in its wake.
License fees vary by state. With the exception of Oklahoma, all states require ongoing costs to keep an active license. This cost ranges from 2 to 16 dollars per year. This is considerably less money than each state raises from the average driver in gas taxes. Neither tolls nor license fees are likely to be able to replace the state and federal revenue of the gas tax. Existing proposals for new ways to tie infrastructure usage to funding run into logistical problems of their own.
One of the most popular proposals is Vehicle Miles Traveled (VMT), which ties the amount of taxes paid to the number of miles a vehicle drives. The most obvious problem with this solution is how to know how many miles each vehicle travels. One possible solution is to tie it to annual vehicle inspections, requiring a report of mileage traveled in the preceding 12 months. However, particularly for trucking, apportioning the taxes between states would be a nightmare. Without tracking vehicles there is no way to know which states roads a vehicle travelled on and thus who should benefit from the taxes paid on a vehicle. If the taxes are not apportioned, companies will likely register vehicles wherever taxes are lowest even if they are primarily driving on other roads.
The more complicated solution is to track vehicles and apply taxes to miles travelled by state. This would eliminate the issue of paying taxes to fund infrastructure while using private roads, which is often a problem with farm equipment that uses tremendous amounts of gas but never touches a road. However, it would require cars to be equipped with tracking technology for the purpose of paying taxes. This would likely be unpopular and create massive privacy concerns with people.
Another proposal is to charge an additional tax on EVs and fuel-efficient vehicles to compensate for their lower gas tax rates. This takes away part of the incentive for purchasing these cars, which we largely want to encourage as much as possible. Over the lifetime of a vehicle, including pollution from manufacturing and generating electricity, an EV is projected to produce half the pollution of a gas-powered car. Removing any incentive for using vehicles that cause less pollution is a concern.
Currently President Biden is proposing a pause on the federal gas tax to alleviate some of the inflation in gas prices. This could give us an early look into what type of revenue the country will have to upkeep its roads in the future. In this phase of transition to EVs it is difficult to decide on a path forward while still attempting to push forward with mass adoption of EVs.
For now, the nation’s infrastructure will continue to suffer until we come up with a solution. The trouble is that, while we have emergent infrastructure needs, the emergency is often overlooked until it is too late. After two years of the COVID-19 pandemic reducing travel, and now, high gas prices keeping people home as much as possible, the situation is becoming more dire. There are more than 46,000 structurally deficient bridges in the United States, and we are paying less than ever in gas taxes to fix them.