In February, the Trump administration laid out its proposal for expanding infrastructure investment in America. The plan calls for $200 billion in seed money to support $1.5 trillion in state, local and private infrastructure investment over the next 10 years. The proposal failed to provide further details on how it would be funded, though the president reportedly supports increasing federal gasoline and diesel taxes by 25 cents per gallon. The U.S. Chamber of Commerce and the American Trucking Association also support raising fuel taxes.
However, given improvements in vehicle fuel economy, fuel taxes are not likely to be sufficient to fund our current commitments, much less additional spending in the future. A far better idea is to replace the fuel tax with a Vehicle Miles Traveled (VMT) user fee.
A different presidential update, the 2018 “Economic Report of the President,” spells out how shifting to a VMT user fee would provide a sustainable source of revenue for funding highway investment spending. It also suggests that allowing the user fee to be higher during rush-hour drive times would have the added benefit of reducing the costly congestion problems plaguing many cities.
When you look past the traditional aversion that most of us have to the idea of tolls, you’ll start to see that a VMT is far and away a better choice for our needs than fuel taxes.
Federal expenditures on highway and transit systems have traditionally been funded mostly by fuel taxes. However, since 2008, revenues from these taxes have fallen short of total transportation outlays, requiring Congress to transfer nearly $144 billion in taxpayer dollars from the Treasury to make up the difference. This shortfall is expected to continue: The Congressional Budget Office projects fuel taxes will come up short in funding future transportation spending plans by $138 billion over the next 10 years.
States also use fuel taxes to fund their share of highway maintenance and construction. The Tax Foundation reports that these taxes, along with vehicle-registration fees, cover a little more than 40 percent of state highway expenditures. Sales taxes and general revenues fund the remainder.
Given future improvements in vehicle fuel economy and the increase in electric vehicles, the fuel tax will have a hard time providing the revenues needed to fund highway maintenance and improvements. Reform is needed.
With a VMT user fee, those drivers who use highways the most pay more to fund maintenance and improvements. This type of a user fee is similar to how we pay for electricity and water.
With Americans driving more than ever, a VMT user fee would provide the necessary funds. While the administrative costs are higher, the benefits of a sustainable source of funds, as well as the time and money saved by reducing congestion through variable systems, dwarf the costs. Even areas without congestion will have a sustainable revenue source for maintenance and improvements, improving highway quality.
A number of states have tested VMT programs. Oregon, Washington and California pilot programs have shown that VMT programs are feasible. A group of states in the Northeast have applied for federal grants to see how it would work on I-95 in a multistate setting. Switzerland and Germany are using a VMT user fee for truck traffic on highways in their countries.
It’s especially useful to compare the net benefits of a VMT user fee with those of fuel taxes, as they are the two primary options that can be used to fund highway investment. These net benefits include the value of reductions in pollution, congestion and accidents minus what drivers pay in VMT fees. Economists Ashley Langer, Vikram Maheshri and Clifford Winston have recently published a paper that makes just such a comparison, taking into account anticipated improvements in fuel economy and setting the VMT higher in urban areas. They found that switching to a VMT (while maintaining spending at levels consistent with the 2015 transportation bill) would generate $1.6 billion — or 20 percent more — in net benefits compared to a fuel tax-based system.
A VMT user fee, adjusted for urban congestion, offers a sustainable option to fund highway investment. It also provides a more efficient way to manage highway congestion and information that can guide transportation planners in choosing infrastructure investments that have the most value to drivers. As Congress and the president move forward on a new infrastructure plan, they should consider the relative merits of introducing a VMT user fee.
• Robert Krol, Ph.D., is a professor of economics at California State University, Northridge, and a senior affiliated scholar at the Mercatus Center at George Mason University in Virginia.
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