Currently, federal, state, and local governments levy gas taxes in order to fund road construction and repair. The taxes and spending associated with roads is an example of the benefit principle of taxation. This principle states that the taxes one pays to the government should be connected to the benefits one receives.
This works really well for roads for a number of reasons. Charging people based on how much they utilize roads ensures that they are compensating the government for pavement damage they cause. It also prevents overconsumption. If people are not directly paying for the use of roads, they may have a tendency to over use them. This leads to congestion, lots of noise, and pollution.
The current gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. isn’t perfect in this regard. It isn’t adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. each year, so the price people pay for roads declines as time goes on. The gas taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. also doesn’t account for the fact that cars are becoming more fuel efficient. Drivers can now purchase less fuel and thus pay less in gas tax for the same number of miles. Put both of these issues together and drivers each year face lower taxes per mile while the benefits they receive from the roads stay the same or increase.
There are other methods of taxation that could better price driving on a per mile basis, such as a vehicle miles traveled (VMT) tax or tolls, but implementing them is a long way off.
But what if the government could perfectly price roads? How much should an individual pay in taxes on a per mile basis?
It depends on what one may consider a cost associated with driving on the road. In other words: what costs do drivers place on the government and other drivers when they hit the road?
The most obvious cost associated with driving is pavement damage. If one didn’t drive, the road would have lasted longer, reducing the amount the government would need to spend on repairs. This is pretty easy to calculate on a per mile basis.
On top of direct costs, there are also what are considered social costs, or the costs you as a driver impose on others by simply being on the road. Some believe that these should also be accounted for in a tax you impose on driving. These costs include congestion, the increased likelihood of accidents, noise, and local pollution.
While some of these costs, especially congestion, should be offset by the price of driving, it’s hard to precisely measure them. What exactly is a Honda Civic’s contribution to congestion per mile it drives? That will definitely depend on the type of road, the time of day, and the weather. And how does a Honda’s contribution to congestion compare to a large truck’s? It is difficult to tell.
Other things such as noise and local pollution are social costs like congestion, but they may be so difficult to price, or not really an issue in many cases, it may not be worth levying a tax to offset them. For instance, driving down a rural road may increase noise, but if no one hears it, is it really a cost?
Depending on how many of these real and social costs policymakers want to price into the user-pays tax, the price could be pretty high on a per mile basis compared to today. The Congressional Budget Office in 2011 estimated the “cost per mile driven” which included the costs associated with pavement damage, congestion, accidents, and noise. For a light passenger car in the city, the cost per mile, or the amount of taxes a driver should pay per mile is about 12 cents according to the CBO. For a truck in an urban area, the cost is as high as 70 cents per mile. This is much higher than the current cost under the gas tax regime of about 2 cents per mile. If the gas tax (federal plus the average of states) were adjusted to be a 12 cents per mile tax, it would need to be increased from the current $0.50 per gallon to around $2.88 a gallon. Certainly way more than most are willing to pay.
This type of pricing could improve road funding. However, the challenge with this type of taxation is setting a price that makes sense. No one really thinks a $2.88 a gallon gas makes any sense, but most agree that current pricing mechanisms are not working.
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