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IS VEHICLE MILEAGE TAX TRULY PROMISING?

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November 1, 2021
IS VEHICLE MILEAGE TAX TRULY PROMISING?

As electric and fuel-efficient vehicles become more ubiquitous, it’s become necessary to release a vehicle mileage tax that promises to be more effective than the traditional gas tax. The details are still unknown, yet it’s obvious that the government is going to implement some changes.

Since the Highway Trust Fund is predicted to thin out by the end of 2021, the issue at stake is quite urgent. Even though it’s not likely that car mileage tax will go into force during the year, we might see the first steps in the process soon enough.

The new tax arises a lot of questions: what does it imply? Is it truly promising or will it burden the wallets of Americans? Below we’ll answer all of these questions and clarify this initiative as much as we can.

What is vehicle mileage tax?

Vehicle miles traveled (VMT) levy is the initiative that would tax drivers by the number of miles they travel. Instead of charging them depending on their fuel consumption, it would collect the mileage data and distribute taxes accordingly.

The money collected via tax by the mile would be spent on improving the infrastructure. According to Pete Buttigieg, the Transportation Secretary, this tax is certainly under discussion in the light of the Infrastructure Plan that Joe Biden proposed.

Despite the fact that the expenditures of infrastructure are exceeding the revenues of the Highway Trust Fund, the Federal Government hasn’t reformed the fuel tax since 1993. The states themselves have increased the gas levy and tried to update taxes to make up for the shortfalls in the budget.

However, it’s obvious that the changes are necessary on the federal level, especially if the Congress approves Biden’s Infrastructure Plan. The President wants the US to improve its infrastructure, which includes modernizing 20,000 miles of roads and improving 10,000 bridges. Naturally, such extensive works would need funding, which has to be collected via taxes.

Vehicle miles traveled tax is shifting focus towards the consumer. Namely, it captures the maintenance costs of the highway and targets people who use the roads the most. It also happens to be a more modern approach, considering the fact that the number of electric vehicles is increasing. Moreover, newer cars have higher mpg (miles per gallon), which decreases the revenue that would be collected from fuel tax. Let’s look at the numbers: on the federal level, gas tax per VMT was 1.51 cents in 1994 compared to 0.75 cents in 2018. According to the research conducted by Tax Foundation, if such a trend continues (and it likely will), the differences in taxes would amount to $7.7 billion.

VMT VS Motor Fuel Tax

VMT and Motor Fuel Tax - comparison

Motor fuel tax is a levy that collects a fee on fuel, including gasoline, diesel, and gasohol. In most cases, this tax is collected depending on the gallons of fuel a person uses. Since it’s not collected from the final price the consumer pays, it rarely increases unless the tax rate is enhanced.

Even though certain states have increased their gas taxes, the revenue is still less than the expenses that are needed to maintain the highways and roads. This approach aims to tax those who use the roads, however, it’s not self-sufficient anymore.

Considering the fact that fuel efficiency increases and electric cars are starting to occupy our roads, people are using less fuel. In other words, fuel gas tax is eroding as it’s failing to serve the main function it has.

Difference between VMT and Motor Fuel Tax

The main difference between VMT and motor fuel tax is that the former levies mileage and affects all cars equally regardless of their fuel efficiency, while the latter focuses on gas consumption and charges low mpg vehicles with higher taxes.

The world’s focus on alternative fuel isn’t going to shift anywhere else due to all the environmental issues. If the motor fuel tax remains the same, the chances are the federal government will constantly have to find funds elsewhere.

The federal government has two options if it wants to solve the shortfalls in the Highway Trust Fund: it has to increase motor fuel tax or substitute it with the mileage tax.

Implementing VMT won’t be an easy process and will require a lot of manpower and finances. However, it seems to be more suitable for modern vehicles. After all, it’s aimed at improving the infrastructure.

Oregon and California have already launched pilot programs and other states are following. The federal government is open to the changes with Pete Buttigieg showing its support.

Why do we need a vehicle mileage tax?

Because the motor fuel tax is eroding and can’t cover the expenditures any more. Plus, now is the perfect timing – the Fixing America’s Surface Transportation Act (FAST Act) is expiring this year. This means that the federal government has to come up with a new plan to make sure the Highway Trust Fund doesn’t thin out.

Don’t get me wrong, motor fuel tax isn’t a bad thing. It had its own purpose that prioritized alternative fuel over petroleum. The tax dealt with the negative effects of pollution and traffic congestion. Besides, the motor fuel tax was quite successful at reversing the negative side effects of automobiles.

But as time passes by and fuel consumption decreases, it’s losing its meaning in its current form. Therefore, we need changes and the pay-per-mile tax could be one.

Once again, I’m not saying that tax by the mile is a flawless solution – it certainly has its drawbacks. But if we want to continue funding the roads and renovating the infrastructure, we don’t really have a choice.

The federal government has to make a decision and the chances are they will shift their support towards the VMT tax.

How would vehicle mileage tax be implemented?

How will vehicle mileage tax work?

According to the research conducted by the Tax Foundation, the federal government has two ways of implementing the vehicle mileage tax. They can choose a simple but less effective method or a more complex yet more efficient way.

A simple way

A simple way of implementing the car mileage tax would be to create a flat rate for all vehicles. Taxes would be differentiated depending on the weight and the number of axles. The reason is simple – the heavier the car, the more damage it causes to the road. Vice versa, the wear, and tear on the roads reduce with the number of axles.

The main of the vehicle computer will record the information about the mileage and 

The mileage information would be recorded on the main computer of the vehicle and taxes would be collected accordingly.

Even though a flat rate seems to be simpler to implement, it has certain drawbacks. It would be hard to levy those who travel from state to state. They would cause damage to the roads of both states, however, they would only pay taxes in the state they reside in.

Another issue is that tax by the mile wouldn’t be effective if it were implemented at the state level only. Pilot programs such as the OReGo in Oregon showcase the limitations of the new tax system. There’s only so much you can figure out with voluntary GPS tracking.

A more complex route

A more complex route includes detailed GPS tracking. Even though it would need more resources, it would be more efficient. Namely, people who live in rural areas would essentially pay more money. Since they cause more damage to the roads and produce more pollution, it makes sense that their taxes would be higher.

As a result, they would have to decide if the travel was truly worth the money.

The problem with a complex route is that it could become too complicated both for the states and taxpayers. This would reduce transparency and make it impossible to collect taxes properly.

Probably the best way to implement vehicle miles traveled tax would be to find a silver lining between these two approaches. Though it wouldn’t be easy, it’s necessary to come up with an optimal solution. Otherwise, the new tax system might collapse.

Opposing arguments to the vehicle mileage tax

As mentioned, mileage tax isn’t perfect and certain groups have concerns about it. As much as we’d like to ignore them, they are quite real. They certainly have to be addressed before the tax gets implemented.

Privacy and data security concerns

Privacy and data security concerns will be especially worrisome if GPS tracking is in the project. I’ll be honest – I would have a hard time agreeing to the idea of the government knowing the location of my vehicle all the time. But arguably, these issues can be tackled.

The pilot program, OReGo, for instance, deletes the collected data after 30 days. Limiting the data collection only to necessary information could potentially reduce the privacy security concerns.
There could also be a private company that would act as a middleman. They would collect the GPS data and control what information is transferred to the government.

Environmental concerns

Environmental groups worry that VMT might decrease the popularity of fuel-efficient and electric vehicles, and promote the use of petroleum cars. The motor fuel tax was quite efficient in tackling environmental issues, but with the new tax system, those cars that have higher emissions might not pay taxes at all. They might be eligible for the tax allowance, which could be detrimental to the environment.

The shift in burden towards fuel-efficient vehicles

If the new tax system becomes official or if the federal government comes up with a hybrid model, fuel-efficient vehicles would suffer the most. They would essentially have to pay more taxes, which can hinder the voting process for the bill.

Higher expenses

Compared to the motor fuel tax, the new tax system would be quite costly to implement. The states would need to send specific hardware to the car-owners to track their mileage. The federal government would have to monitor more than 268 million vehicles, which is certainly extensive work.

Can vehicle mileage tax increase the number of mileage fraud?

Vehicle mileage tax and mileage fraud

Potentially, people who wouldn’t be willing to pay taxes would find ways to reduce their fees, which might include committing mileage fraud. Even if the government sends out specific devices, it will be hard to verify whether the mileage is accurate or not.

The accuracy of the mileage would be even harder to check if the data about traveled miles was collected from the cars themselves.

The tools that change vehicle’s mileage are quite widespread these days. They are cheaper than the expense that a higher tax would cause. Odometer fraud is already a prevalent issue and I’m afraid it would become even more serious if the pay-per-mile comes into force.

People usually use two tools to reduce the numbers on their odometer. The first of them is the Odometer Correction Tool. The device can reprogram the trip meter, however, it can’t alter the existing data in control units. It’s unlikely that people will use such a unit – the information about mileage will probably be pulled from the internal storage, not the odometer.

It’s more likely that they will use the Mileage Blocker instead. But how does it work? – it stops recording the mileage in all control units. It’s far more efficient in the sense that its performance is impossible to detect. It also has a mobile application for additional features. The device is available online and you can purchase the mileage blocker for yourself. Even though this tool is not for fraudulent applications, people might take advantage of its features. Read more about this innovative technology and find everything you need to know.

Essentially, the VMT might solve one problem but it might increase another. We just have to decide what our priorities are. I don’t think that the government will fail the new tax system just because of this problem, but we still must be aware of it and prepare accordingly.

Final Takeaway

Nobody can claim that tax by the mile is a perfect system. It’s still necessary to discuss all the details and weigh its drawbacks and benefits. We still don’t know if the US will adopt a new law, but the chances are the federal government will introduce the changes.
Keeping in mind the erosion of the current motor fuel tax, it seems like we’ll have to sacrifice certain things to implement a better tax system.

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