The Behavioral Economics Of Per-mile Road Taxes

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THE VINE MARCH 10, 2009

The Behavioral Economics Of Per-mile Road Taxes

Back in January, I wrote a post about the possibility of replacing the gas tax with a tax on vehicle-miles traveled (VMT), arguing that it was an interesting idea, but not something that made much sense to enact until cars were a lot more fuel-efficient. Transportation Secretary Ray LaHood must not have gotten the message, because he proceeded to tell the AP that he’d like to see a VMT tax. Obama’s press secretary, Robert Gibbs, quickly dismissed the notion, seemingly putting an end to its consideration for the near future. But now House Infrastructure and Transportation Com mittee chairman James Oberstar is saying that he wants the new highway bill his committee is drafting—which will provide the bulk of the nation’s surface transportation funding for the next six years—to include a VMT tax. Does this mean we’ll soon be paying for each mile we drive?

Probably not. There’s still a good policy argument for using a gas tax increase rather than a VMT tax to raise funds for highways—after all, a VMT tax wouldn’t provide any incentive to drive more fuel-efficient cars. And a national VMT tax would almost certainly be a political non-starter. It would be an extremely visible tax on something that most people do every day, and it would require every driver in the country to install a mileage-monitoring device that would cost money and possibly raise privacy concerns. But with that said, the Greenwire article on Oberstar’s interest in the VMT tax makes an intriguing point about one potential advantage of per-mile pricing:

Pricing advocates argue the gas tax fails to force drivers to confront the true cost of using roads and bridges. Because of relatively frequent swings in the price of fuel, they say many Americans associate the tax with the cost of gas and not of driving.

In other words, drivers become inured to small fluctuations in gas prices and might not change their behavior in response to a modest gas tax increase. But a VMT tax, because it’s so visible, might produce larger behavioral changes with the same overall increase in taxation. And given that any tax on driving is going to be at least somewhat regressive, maximizing the behavior-altering effectiveness of each additional dollar of taxation is certainly something worth doing. Of course, whether a VMT tax actually works this way is something that we won’t know until somebody tries it. That’s why, even if per-mile taxes are an idea that's nowhere near being ready for widespread adoption, it could actually be pretty useful for one of the states reported to be considering a VMT tax to end up going through with it.

--Rob Inglis

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