Does Oregon Need a Mileage Tax?

By Fred Thompson:
Oregon Economics Blog

Oregon’s State Highway Trust Fund is broke. Options addressed by the Oregon Transportation Commission, the Governor’s Office, and the Legislature aimed at fixing this state of affairs include raising DMV fees to recover the full cost of the products/services it delivers to Oregonians. By state law most of the division’s services are supposed to recover their costs; the remainder are supposed to make substantial contributions to the Highway Trust Fund. But, because the legislature has repeatedly failed to authorize DMV to increase its user fees, the DMV is instead costing the Highway Trust Fund over $100 million per annum. ODOT has also been looking at alternatives to replace the gas tax, now the main support for the Highway Trust fund, among these are a fee for studded tires, a leading cause of road wear, and a weight-use-per-mile tax for personal vehicles. Cars are becoming more fuel-efficient. Consequently, the gas tax isn’t keeping up our needs for highway construction and maintenance. A car that gets 60 miles-per-gallon is great for the environment, but it contributes substantially fewer tax dollars and as much highway wear-and-tear and congestion as any other car.

Oregon is a leader in the study of mileage-based taxes. It has long relied on a weight-use mile tax for commercial vehicles. And it began to develop a mileage tax for personal vehicles as early as 2001. The pilot programs it has conducted since then have garnered national attention in transportation circles. As Governing Magazine reports: “Many view the state as being on the cutting edge of transportation funding. A Congressional Budget Office report published in 2011 suggested a miles-driven fee as a viable alternative to the gas tax, and many national transportation experts have endorsed the idea too.” These pilot projects have looked at outfitting cars with a special-purpose GPS device that would tell them where they have been. The latest iterations rely on commercial GPS devices (like phones or navigation devices) or more simply a wireless device that would report mileage back to ODOT HQ on a daily or weekly basis.
A lot of folks don’t like mileage-based taxes. Blue Oregon’s Keri Chisholm calls them a “terrible, horrible, no-good, very bad idea that just won’t die.” Keri grants that more money is needed to maintain Oregon’s transportation infrastructure, but, like a lot of people (although not a majority of the state legislature), he would prefer to increase the gas tax, 15 to 20 cents per gallon.

I like mileage taxes. Most people do as long as they remember that the tax is a charge for highway use, not primarily a means of deterring driving or harmful emissions. A good mileage tax would reflect axle weight and miles travelled, which, together with vehicle speed, constitute the main determinants of highway wear and tear. Ultimately, it would probably be advantageous to incorporate operating speed into the mileage rate. This would allow the tax to be calibrated to the damage a car causes to the State’s streets and roads, but would require something more than a simple report of miles traveled. Installing a system based on GPS data on highway usage, would also make it easier for ODOT to figure out when and how much maintenance state highways need and to allocate funds to municipalities and counties based upon the actual use of their streets and roads.

Of course, the critical advantage of a GPS-based mileage tax is that: “You can potentially calibrate the level of the tax to the degree of congestion on the particular road at the particular time of day, so the tax better reflects the changing externality associated with driving.” In the longer run, congestion pricing would also be useful for planning for future highway needs. In my opinion, its potential use in congestion pricing is the best possible argument for building a GPS system.

Several reasonable objections have been raised against mileage taxes. The first is that vehicles licensed in other states would be exempt from the system. That is not now the case with commercial vehicles and occasional visitors to the state could simply be included in system by which we collect taxes on commercial vehicles. More frequent visitors would undoubtedly find it more convenient to plug into the state’s GPS system.

Second, “removing financial advantages of low carbon impact driving is antithetical to the health of our ecology and the direction our economy needs to go.” I have a lot of sympathy with this argument, but Oregon’s current gas tax is too low to have significant effect on carbon emissions, the state is the wrong entity to impose a carbon tax (although in the absence of national action, better than nothing), and abating greenhouse gases calls for taxing all sources at the same rate, proportional to the harms they produce, not just motor fuels. Moreover, there are substantial federal and state incentives aimed at persuading folks to substitute high mileage vehicles for gas guzzlers.

Third, giving ODOT the means to monitor our cars’ movements throughout the state would infringe upon personal privacy. Putting a GPS device in everyone’s car is evidently upsetting to a lot of people. This seems silly to me. Most new cars already have such devices and many of us carry cellphones around on a regular basis. Is it safe for Verizon or GM to have access to the information produced thereby, but not ODOT? OK, I think we are a bit nuts about privacy in any case: that personal and corporate tax returns, information on children and families, and personal heath records are all private makes the formulation of coherent public policy nearly impossible. By my opinion here doesn’t matter. The fact is that it would be a simple matter to allow folks with serious concerns about their privacy to buy their way out of the system. 

There is one objection to this proposal, however, that really doesn’t make sense, that road use is the wrong tax base: “even people who don’t drive are road users. Any type of commerce or business depends on our road network; every product we buy is shipped via roads at least partially. The idea that the cost of roads must be paid through a ‘user fee’ is silly. We are all road users.” That we are all road users whether we drive on them or not is absolutely true, but it is equally true that insofar as paying a road tax is a cost of doing business, the tax will be shifted to those of us who ultimately benefit from their use. But, in fact, this argument is irrelevant to the proposal under consideration, which is concerned exclusively with the use of personal vehicles. Oregon already applies a mileage tax to commercial vehicles.

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