I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).
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The vehicle miles traveled tax: a complicated solution for a complicated issue
By Steven Chung
During the 2000s, gas prices were rising steadily, reaching its peak in the recession of 2008. As a result, we were not only paying more for gas, but also for necessities because businesses had to pass on shipping and transportation costs to the customer.
When people demanded answers, finger-pointing ran amok: the falling value of the dollar, increased oil demand from developing countries like India and China, OPEC and speculators unethically profiting from geopolitical tensions, and Americans’ obsession with SUVs and sports cars to name a few.
So the populace responded. The unemployed or underemployed were forced to drive less. But people also cut back on recreational driving and traded in the SUVs for more fuel-efficient vehicles. Car companies have developed and marketed hybrids, natural gas and electric vehicles. Because these cars were untested and generally more expensive than the conventional models, the federal government encouraged its use by providing tax credits to the early adopters.
Cultural shifts and technological advances also led to reduced driving and reliance on gasoline. Millenials prefer to walk or ride a bicycle rather than drive. Also, thanks to navigation devices installed in cars and smartphones, people can find the most efficient route to a certain location, thus minimizing unnecessary driving. Finally, the all-electric Tesla is beginning to replace the Range Rover as the status symbol for the rich.
As a result, demand for gas has decreased while the number of miles driven has supposedly remained constant. This threatens the future of highway infrastructure maintenance as it relies on state and federal excise taxes for funding.
In response, some politicians are considering replacing the excise tax on gas with a vehicle miles traveled (VMT) tax that charges taxpayers for the number of miles they drive. The VMT tax will be calculated by installing a GPS device on all cars to track the number of miles driven.
At this time, I cannot support a VMT tax, even in exchange for a reduction or elimination of existing fuel taxes. I should disclose that I own a hybrid car although I drive it like a sports car and carry enough junk in it to fit a small SUV.
Supporters of the VMT tax will point out that it ensures that drivers pay their fair share of maintenance costs for using government supported roads and highways. There have also been studies showing that implementing a VMT tax can be feasible with current technology and would bring in more revenue than the current gasoline excise taxes. However, most of these studies are inconclusive and based on hypotheticals. They also do not take into account how other factors contribute to road damage such as natural disasters, weather conditions, and car accidents.
The primary opposition to the VMT tax is that it will increase transportation costs which may curb a slow and fragile economic recovery. It will have the worst impact on low income individuals and families who drive long distances to work, usually out of necessity. Also, it is unclear as to whether the taxpayer or the government will pay for purchasing and installing the tracking equipment. For businesses, the increased cost of compliance will likely be passed onto consumers through higher prices.
A VMT tax can also discourage the purchase and development of fuel-efficient cars. Right now, hybrid cars have not quite reached mainstream appeal and electric vehicles are still in its infancy. Now this does not mean that someone will trade in his Prius for an Escalade. But a VMT tax will be taken into consideration when someone decides to purchase a hybrid compared to a lower costing conventional model. And if sales of hybrids and electric cars decline as a result, manufacturers may stop or reduce production.
A VMT tax also poses a problem of inconsistent treatment. For example, if only certain states implement the VMT tax, how will they address out of state vehicles that pass through their states? The majority of these vehicles are commercial semi-trailer trucks that presumably cause the most damage to roads and highways due to their weight. They will be exempt from the VMT tax and will benefit from the repeal of a state gas excise tax.
Finally, the public will view the VMT tax with great skepticism because more so than ever, people are generally distrustful of government policies. Politicians advocating a VMT tax will face resistance by their colleagues and their constituents. People have to be convinced that the money used from the VMT tax increase will be used exclusively for road maintenance and not as an indirect way to fund a politician’s pet peeve pork project. Finally, some will view the VMT tax as a clandestine way for the government to invade their privacy through the tracking systems.
There are some alternatives to the VMT tax. One short term solution would be to increase the gasoline excise taxes as they are not currently indexed for inflation. Also, since the use of electric cars have generated an increase in public utility revenues, some of the money generated should be transferred to the highway maintenance fund. Annual car registration fees can be increased, particularly for high-end electric cars such as Teslas.
If a VMT tax does come to pass, some measures should be taken to protect privacy and encourage the use of fuel efficient vehicles. The tax rate should be reduced for people who drive fuel efficient vehicles. And instead of installing a GPS tracking device, the VMT tax can be paid through the purchase of items that need to be regularly replaced after a certain number of miles have been driven – such as engine oil.
On my way to work, I pass by a section of Los Angeles known as “Miracle Mile.” That section of Wilshire Boulevard is so poorly maintained that it is a miracle if you can drive a mile without damaging your car’s suspension. So I understand that roads need to be properly maintained and someone has to pay for it. However, I am not convinced that a VMT tax is the solution. If not implemented properly and fairly, then the revenue goals may backfire as the tax increase will incentivize people to drive less and increase the cost of goods and services.
Steven Chung is a tax attorney in La Palma, CA. When he is not resolving tax controversies, he studies digital currencies and helps people manage their student loan debts.
