Electric cars render the gas tax increasingly irrelevant

OPINION:

The popularity of electric vehicles has surged in the last few years, propelled in no small part by the steady improvements in battery strength of EVs, an incredibly generous tax credit, and the marketing-cum-engineering genius that gave us the Tesla. They now constitute nearly two percent of all cars sold, and that market share appears to be increasing rapidly. 

While this trend may bode well for combating climate change in the future, it also has the potential to exacerbate a number of near-term problems — namely the financing of road construction and income inequality — if we do not proceed thoughtfully in how we further encourage their adoption.

We have already had a glimpse as to what further increases in market penetration might do to funding for roads: The gradual fuel efficiency increases in the cars on the road over the last 15 years has diminished the revenue from the gas tax, which generates most of the money for road construction. Continued increases in the proportion of cars that use no gasoline at all will further depress this revenue, forcing states and the federal government to make some difficult decisions about how to pay to build and maintain roads and bridges.

While the obvious response to this revenue decline would be to increase the gas tax, that creates another problem: The fact that electric vehicles are pricey (and will remain so for the foreseeable future) means that they are and will likely remain the province of the wealthy. In fact, data shows nearly 80 percent of EV tax credits are claimed by those earning six figures and above, making it an extremely regressive benefit. 

Continuing to pay for roads via a gasoline tax means that only those who cannot afford an electric car will shoulder the cost of maintaining our roads. As more electric cars come onto the market and displace gas-burning cars, the gas tax needed to finance road upkeep will need to keep increasing, and the resulting tax burden on middle and working class drivers will go up. The result, of course, would make the gas tax extremely regressive.

However, a gas tax fails to adequately account for another social cost that driving entails — road congestion. Congestion not only wastes people’s time, but it also is the main cause of smog, which contributes both to breathing problems for people with compromised health as well as climate change.

A rural Iowan with an old pickup truck might pay a lot in gas taxes and not contribute to road congestion at all, while someone who commutes in a Tesla to downtown Chicago from a faraway suburb increases congestion every day of the week and does not pay a dime in taxes. 

An antiquated road financing system that is becoming increasingly ineffective at addressing congestion is a large problem that electric cars exacerbate. 

As electric cars become more popular, utilities are making plans to construct systems of recharging systems that would be able to quickly replenish batteries for all types of electric cars. It is, of course, a necessary and welcome step if electric cars are going to be used on long trips, but it will come at a cost, and at present the plan for most utilities is to hike rates to pay for the increased capital investment. 

While that may be the normal modus operandi for utility investments, it also constitutes a regressive funding system, as middle class utility payers are paying to make life easier for wealthy Tesla owners. 

Eventually, of course, it is hoped that the majority of cars on the street will be EVs of some sort, but that day is decades in the future. The implementation of a carbon tax (in lieu of an EV tax credit) would both reduce the regressivity of electric vehicles and ensure that we are not replacing gas-burning cars with electric vehicles largely charged by energy produced by fossil fuels. 

Electric cars may have the potential to help us alleviate pollution and carbon emissions, but if we do not change how we finance our roads to make sure that their drivers pay their share, their popularity will accomplish much less than we anticipate. 

• Ike Brannon is a senior fellow at the Jack Kemp Foundation.