The Tax Foundation's Take on Mileage-Based User Fees

In late February, the Mileage-Based User Fee Alliance held their second annual conference. Guest speaker: Kyle Pomerleau, an economist for the Tax Foundation’s Center for Federal Tax Policy.

"I was invited to speak on the tax policy and the taxpayer perspective of mileage-based taxes, or sometimes referred to as vehicle miles traveled (VMT) taxes," writes Pomerleau. "This group is interested in how mileage-based taxes could help better fund transportation spending and how it can better 'price' roads than the gas tax."

The basis for the gas tax is the user-pays principle of taxation. This principle states that those who benefit from government spending (in this case roads) should pay for the associated government spending. This “prices” the roads in order to prevent overconsumption (congestion) and makes sure there is sufficient revenue to fund repairs.

Gas tax "underprices" roads

Pomerleau points out the inherent flaw in gas taxes: it's a tax on fuel consumption, not on driving. Furthermore, it isn't adjusted for inflation. Result: it "underprices roads, which leads to an underfunded trust fund and crowded roads."

Inherent problems with VMT Fee (or Tax)

While a mileage based system could raise sustainable revenue and price roads more effectively than the gas tax, there are some possible drawbacks. It requires more administration than the gas tax, people have privacy concerns about their vehicle being tracked, and since it is much more salient compared to the gas tax, there may be more political opposition.

Even if the VMT Fee were a consideration on the federal level (as it is in Oregon and many other states), it's not ready to be implemented any time soon, while the Highway Trust Fund runs out of funding on May 31, notes Pomerleau, who closes his essay by writing, "A more near-term solution needs to be devised that fixes the trust fund, whether it is spending reform, funding reform, or some combination of the two."

In a second, comprehensive piece on the federal gas tax and the Highway Trust Fund, Pomerleau describes the Obama plan that would repatriation tax revenue. "This type of proposal violates a number principles of good government finance, among them, the user-pays principle which states that taxpayers should pay for the government services they use." He goes on to analyze various "Options to Fix the Highway Trust Fund."