While fixing infrastructure funding has not been a focus of the 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. expiration debate, it would be a smart way to pay for at least a small portion of the expiring tax cuts. In recent years, highway funding has exceeded highway revenues, and the introduction of electric vehicles has made the 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. increasingly obsolete.
There are bills in both Houses of Congress to address this problem by putting a one-time fee on new electric vehicles. This proposal is a start, but fully replacing the gas tax with a tax on vehicle miles traveled (VMT) would be both a better solution and a stronger revenue option for extending the expiring tax cuts.
1. The Highway Trust Fund Has a Major Fiscal Problem
Highway Trust Fund (HTF) expenditures are growing more quickly than the HTF’s primary revenue sources— user fees in the form of taxes on gasoline and diesel fuels. While these user fees were once sufficient to fund highway expenditures, the deficit between Highway Trust Fund spending and revenue was $13.5 billion in 2024. This gap is projected to grow, reaching almost $37 billion by 2034 when the gas tax and other Highway Trust Fund taxes will raise less than half of the fund’s projected outlays.
The sluggish growth in real revenues has two main sources. First, the federal gas tax has not been 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. since 1993. The inflation-adjusted federal gas tax was roughly half the rate in 2024 as it was in 1994.
Second, vehicles are using less gasoline per mile traveled on US highways. Average fuel efficiency for passenger vehicles increased more than 75 percent since 1977. Additionally, the introduction of electric vehicles (EVs) means an increasing share of vehicles that use roads do not pay any fuel tax whatsoever. These effects resulted in a decrease in federal revenue per vehicle miles traveled by more than 50 percent from 1977-2022.
2. The Current Proposal Is a Debatable Halfway Fix
The Fair SHARE Act, proposed by Rep. Dusty Johnson (R-SD) and Sen. Deb Fischer (R-NE), would impose a one-time $1,000 fee on new EV sales. EVs include only fully electric vehicles, not hybrids. The bill also includes a $550 fee on battery modules weighing over 1,000 pounds to adjust for the additional wear and tear heavier EVs impose on roads.
This proposal does target the EV-related hole in road user fees. The one-time $1,000 fee is roughly in line with estimates that the average driver pays $1,000 in federal gas taxes over the course of a decade. The fee on heavy battery modules also targets additional wear and tear attributable to heavier electric vehicles.
These are crude patches. The policy does not adjust at all in response to miles driven. While the gas tax is not perfect, people who drive more pay incrementally more gas tax. The one-time fixed fees do not adjust for the number of miles driven and accordingly do not track the maintenance costs different drivers impose. Someone who drives their EV 5,000 miles per year would pay the same fee as someone who drives their EV 20,000 miles a year.
3. We Estimate the Fair SHARE Act’s EV Taxes Would Raise Almost $50 Billion over 10 years
Based on a series of estimates, we project the Fair SHARE Act would raise $48.75 billion over the next decade. That revenue would come from three sources: the $1,000 fee on all EVs, the $550 fee on battery modules weighing over 1,000 pounds, and additional gas tax revenue coming from a slight reduction in EV adoption (and accordingly, higher use of conventional vehicles) resulting from the policy. This revenue would provide close to $50 billion to the Highway Trust Fund.
However, it would not reduce the overall federal deficit by the same amount. Excise taxes reduce income and payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. revenue. After applying a standard income and payroll tax offset, we estimate this proposal would reduce the overall federal deficit by $36 billion over the next decade.
Johnson-Fischer EV Fee Bill Could Raise $49 Billion over 10 Years, Reduce Deficit by $36 Billion
10-Year Conventional Revenue Estimates, 2025-2034
4. This Estimate Comes with Significant Uncertainty
Revenue estimation always comes with uncertainty, but it is particularly pronounced for policies regarding electric vehicles.
The most important uncertainty relates to what other policies are in effect. The electric vehicles credits introduced in the Inflation Reduction Act (IRA) are projected to increase EV adoption, as are new EPA regulations on vehicle tailpipe emissions and subsidies for EV charging infrastructure included in the Infrastructure Investment and Jobs Act (IIJA) of 2021.
EVs have substantial technological uncertainty, even holding policy constant. The technology may improve quickly and gain much wider adoption, or a large set of consumers may be unwilling to abandon conventional cars under any circumstances. The models of EV adoption CBO reviewed in a 2023 paper estimate EV market share among new light-duty vehicles could be as low as 16 percent or as high as 94 percent by 2035.
Our estimate is based on CBO’s median projection of EV adoption that assumes both the IRA and IIJA subsidies stay in effect. However, it does not include the effects of new EPA tailpipe emission regulations finalized last year that may be rolled back. To illustrate the challenge, we also considered two other scenarios: one assuming strict tailpipe regulations stay in effect, and the other assuming the tailpipe regulations, EV credits, and IIJA subsidies all get rolled back. Under the high EV adoption scenario, the fees raise $73 billion in gross revenue and almost $54 billion on net, while under the low EV adoption scenario the tax raises only $33 billion gross and just over $24 billion on net. There is some indication based on recent trends and industry forecasts that the low EV adoption scenario has become more likely.
Revenue from EV Fees Depends Heavily on EV Adoption
10-Year Conventional Revenue Estimates (2025-2034)
Source: Author's calculations, EIA, CBO.
5. The Ideal Fix Is a Road Use Charge or Vehicle Miles Traveled Tax
The cumulative projected Highway Trust Fund highway account deficit is more than $270 billion from 2025 to 2034. The revenue this EV fee would raise would reduce the deficit, but it clearly would not fix the problem.
The best solution for long-run funding of highways is a tax based on vehicle miles traveled (VMT). Such taxes are also called mileage-based user fees or road usage charges, but they all establish a better road funding mechanism by aligning use with costs.
A VMT tax would measure actual road use and then charge the driver for each mile driven. If accurately calibrated for the wear and tear different vehicles impose on roads (ideally by adjusting the tax rate by the weight per axle of a vehicle), it would reconcile roadway revenues and expenditures, eliminate the EV hole in the gas tax, and insulate road funding from changing efficiencies, technologies, or consumer preferences.
The most common concern with VMT taxes is administrative feasibility. However, state-level programs have proven they are possible. Four states have active programs for passenger vehicles and four other states have active programs targeting heavy commercial vehicles (Oregon has both), with pilot programs carried out in 16 states. State rates range from $0.008 per mile in Hawaii to $0.02 per mile in Oregon. Design options range from manual odometer readings (quarterly or annually as part of a state’s existing inspection or registration process) to higher-tech options that track usage via plug-in devices, already built-in GPS, and smartphone apps like those used in insurance markets (e.g., Progressive’s Snapshot and State Farm’s Drive Safe & Save).
An ideal VMT system would be federally coordinated. States currently wishing to implement a VMT face the serious challenge of “free-riders”—(out-of-state) users of the road who don’t pay into the state VMT. Patchwork regional coalitions partially address this issue, but the best solution would be a single system that covers all 50 states. And even a standalone federal-level VMT would not have the same challenges regarding in-state versus out-of-state drivers.
A VMT tax also has more potential as a revenue option. In our paper last year, we put together a hypothetical VMT that would pay for the Highway Trust Fund’s expenses. A VMT proposal that fully replaced the gas tax and was set at rates necessary to fund highway outlays would raise $270 billion over 10 years and reduce the overall federal budget deficit by around $200 billion. Such a proposal would be a smart and efficient revenue option to add to the reconciliation debate.
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