Bloomberg News

Miles Driven Seen as Fair Way to Pay for Highways: Taxes

December 07, 2012

American Miles Driven Seen Fair Way Paying for Highways: Taxes

Miles driven in the U.S. peaked at 3.03 trillion in 2007 before declining during the economic downturn, according to the Federal Highway Administration. Photographer: Brent Lewin/Bloomberg

The idea of a U.S. tax based on miles driven went from untouchable to a matter for serious debate with a single quote.

By telling reporters such a tax is “a fair way” to pay for highway improvements, incoming House transportation Chairman Bill Shuster last week revived a concept his own committee this year blocked from even being studied. President Barack Obama’s spokesman in 2009 rebuked the transportation secretary for discussing it.

Shuster is trying to build support for raising revenue for transportation and looking toward 2014, when Congress must consider its next highway funding legislation, said Mort Downey, a Democratic former deputy transportation secretary. The current ways of financing U.S. road and transit projects, most importantly the gasoline tax, can’t raise enough money because people are driving less and cars are more fuel efficient, he said.

“He wants to put forth a robust bill,” said Downey, now a senior adviser to engineering firm Parsons Brinckerhoff Inc. “And he knows that unless the world turns upside down, he’s got to find a way to pay for it.”

Jeff Shane, a partner at Hogan Lovells LLP and a Republican former transportation undersecretary, called Shuster’s talk and muted reaction to it “both significant and encouraging.”

“The fact that we didn’t see an immediate, negative, knee- jerk reaction bodes well for the future of the debate,” Shane said in an interview.

1.8 Cents

Replacing the $54.5 billion raised for highway and transit projects from fuel taxes and other sources would require an average vehicle-miles tax rate of about 1.8 cents a mile, according to data compiled by the Federal Highway Administration. That’s based on the 2.97 trillion miles (4.77 trillion kilometers) driven in 2010.

Miles driven in the U.S. peaked at 3.03 trillion in 2007 before declining during the economic downturn, according to the agency.

A motorist driving 12,000 miles a year, at that rate, would pay about $220 a year. Tax rates may be lower than 1.8 cents a mile on cars if the levy varies by vehicle size as highway tolls do. Under the current taxing system, a driver operating a vehicle getting the new-car average of 24.1 miles a gallon for the same number of miles pays about $92 a year.

Supporters of a vehicle-miles levy will need to convince a public wary of government intrusion, new forms of taxes and the cost of collecting them.

“To the general public, it smacks of Big Brother, which of course goes back to Orwellian books,” said Pete Rahn, a Republican former state transportation director in Missouri and New Mexico and now leader of the transportation practice at Kansas City-based HNTB Holdings Ltd., an engineering firm.

Falling Short

The U.S. Highway Trust Fund, designed to pay for U.S. road and transit projects, is about 90 percent financed by per-gallon taxes of 18.4 cents on purchases of gasoline and 24.4 cents on diesel fuel.

The amounts haven’t risen since 1993 and aren’t indexed to inflation. Because of that and the improved fuel efficiency of vehicles, the collection of taxes has fallen below the amount of spending.

The fund hasn’t covered transportation spending since 2009, according to a 2011 Bloomberg Government study. Congress has bailed it out four times since then with general-fund money. A surface transportation bill passed in June included $18.8 billion in general-fund money over two years.

‘Huge Issues’

The Congressional Budget Office, in a May report, said the amount of money available to the trust fund may decline as much as 13 percent from 2012 to 2022, with automakers required to increase the average fuel economy of their fleets to 54.5 miles per gallon by 2025.

Replacing the gasoline tax with a VMT fee couldn’t be done for years, Jack Schenendorf, a former Republican staff member for the committee Shuster is set to lead, said this week at a panel at the National Press Club in Washington.

“There are huge issues to overcome, many of them political,” said Schenendorf, a Covington & Burling LLP lawyer who was vice chairman of a commission that in 2008 suggested raising fuel taxes as much as 40 cents a gallon.

The chief barrier may be what Richard “Trey” Baker, a researcher at Texas A&M University’s Transportation Institute, called “the big privacy issue.”

A VMT system would require some way of measuring travel, creating the specter of the government tracking movements of every car and truck. Baker, who’s studied public opinion of a VMT tax for five years, said motorists are also concerned how secure data about their driving habits would be.

Collection Costs

Even if presented as an alternative to the gasoline levy, a VMT is perceived as a new tax, Baker said, citing his own research.

“It faces a very steep uphill battle on that alone,” he said.

Shuster, like most Republicans in Congress, signed activist Grover Norquist’s pledge not to raise taxes.

The American Trucking Associations, whose members include FedEx Corp. (FDX:US) and United Parcel Service Inc. (UPS:US), opposes switching to a VMT tax because of the costs of creating, running and enforcing a new system, said Darrin Roth, the group’s director of highway operations.

“We see costs anywhere from 20 to 50 percent of revenue just depending on what type of system is implemented,” he said in an interview.

Rahn said the tax wouldn’t have to be that complicated.

“I believe it can be as simple as collecting a vehicle miles traveled tax as part of your vehicle registration system. Annually, when you get your tag, there’s a fee based on how many miles you drove,” Rahn said.

Grocery Shopping

States including Iowa and Oregon have done VMT tax testing with volunteer drivers. In Oregon’s second test, started last month, drivers can report the number of miles driven or give more information about where they drove. A system based on the latter could save motorists money by allowing an exclusion for miles driven outside the state.

House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, declined to comment about a VMT tax, saying he hasn’t talked with Shuster.

Senator Claire McCaskill, a Missouri Democrat, wrote to Transportation Secretary Ray LaHood last year opposing a VMT.

Rural Drivers

“A vehicle miles traveled tax would particularly hurt drivers in rural areas who must travel long distances to work, school, and to tend to everyday needs like grocery shopping,” she said.

McCaskill isn’t the only Democrat that LaHood, a former Republican House member from Illinois, has heard from. After he suggested in 2009 that a VMT tax should be an option, then-White House press secretary Robert Gibbs said such a system “will not be the policy of the Obama administration.”

Matt Lehrich, a White House spokesman, didn’t respond to an e-mail seeking comment on whether that position has changed.

“Transportation has its own fiscal cliff,” Schenendorf said, referring to negotiations between Obama and Congress on heading off tax increases and spending cuts set to take effect in January. “The gas tax is not going to be viable long-term. And we need to be moving aggressively.”

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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