Kind of stupid...

The Gas Tax is Obsolete. Here’s a Better Idea.

It’s based on the simple principle that those who benefit should contribute.

By PETE K. RAHN

Although Democrats and Republicans are still debating the size and scope of an infrastructure package that would address long-delayed repairs and maintenance of the nation’s streets and highways, there’s general agreement that it needs to happen and soon. The real problem is one that has festered for decades: how to pay for it when raising taxes is politically toxic.

But the solution isn’t as hard as you might think. The first step is to get rid of the existing federal gas tax entirely, which is obsolete in an era when more and more of the cars and trucks on the roads are hybrid, electric or powered with alternative fuels. The second step is to return to the original principle behind the gas tax, which is that it should be sufficient to support our highway system and be efficient to collect.

Let’s start with the recognition that no one wants to pay a tax, regardless of the benefit. Yet, someone must pay for a national transportation system vital to the country and its citizens’ safety and well-being. How can that be done in the fairest way possible?

Since 1932, our surface transportation has been funded primarily through an imposition of a per gallon fuel tax, which started out as one penny per gallon. The tax was increased in 1956 to pay for the Interstate Highway System and was adjusted a few intermittent times, but 1993 was the last time it was increased. It has lost 68 percent of its purchasing power since then. And as more and more hybrid and electric vehicles hit the road, the linkage between fuel use and road use gets weaker and weaker.

This is a major contributor to our crumbling infrastructure. Many states have been allowing lower-volume roads to deteriorate, ignoring rising congestion and fighting a losing battle against a rapidly aging highway network. We all pay for this: Increased car maintenance. Time lost in traffic. Home values eroded. Jobs move away. Our quality of life suffers. As a country, our economic competitiveness suffers.

Still, we have all accepted this over the years because raising the gas tax is more unacceptable. That’s also why Congress has chosen to divert $148 billion of general tax revenues to the Highway Fund instead of other national priorities. Another $198 billion will be needed to fill the shortfall over the next 10 years.

The federal fuel tax has outlived its usefulness. Both the looming electrification of the automotive fleet and the rapid increase in the fuel efficiency of the country’s automotive fleet has doomed the tax. This will continue as vehicles become ever more efficient. We’ve reached the point that some other solution must be found.

A great deal of attention is now focused on the idea of a “vehicle miles traveled” tax or VMT, which would try to assess a user fee on every vehicle using the roadways, regardless of its energy source. But there are two reasons a VMT is unworkable in practice. First, personal privacy. From my own experience as secretary of transportation in Maryland, I saw firsthand the public’s fear of just using anonymous, aggregated cell phone data for planning purposes. I can tell you that having the government actually be able to identify a person’s type of vehicle and see where and when it is driven will generate opposition that will not be overcome. There are many people who will not get a transponder to pay tolls for this very reason. Additionally, the idea that young people will accept location tracking because of their comfort with using cell phones was not supported by polling that I oversaw as Maryland’s transportation secretary. The “Big Brother” argument will not go away.

The second barrier to the VMT tax is the cost of collection. Currently the motor fuel tax is levied at the pump and collected from 600 fuel distributors, making it very inexpensive to collect. By contrast, the U.S. has 263 million registered vehicles; we would go from 600 gas-tax payers to 263 million. Each vehicle will need to have its mileage, and potentially each fuel purchase, tracked. Not answered is how hundreds of millions of Americans will pay the tax due. Conservative cost estimates for just collecting the tax exceed 15 percent of revenue raised. I believe that number is low.

So, what can we do instead? The solution is to evolve from a “user pays” to a “beneficiary pays” system. This approach recognizes that in our modern economy there are many beneficiaries who are not “users” of the national highway system but are definitely dependent on it.

Right now, many who benefit from our transportation system do not pay for its upkeep or improvement. For instance, anyone who has packages delivered to their front door or uses ride-sharing services or shops at a retailer that gets goods delivered by truck are beneficiaries of the national highway system even if they never get behind the wheel of a car.

What would a “beneficiary pays” system look like? Implement a federal surcharge on all commercial activity occurring on U.S. streets and highways of approximately 8 percent and direct the proceeds to the existing Highway Fund. A commercial surcharge would assess the cost of our national transportation system on all who benefit from it. It more directly aligns the cost of maintenance and improvement with the benefit. Instead of taxing individuals, it would be more similar to the system we have now, in that the costs would be built into the end prices consumers pay. And it would be more equitable than the existing gas tax, which hits poorer and rural drivers harder because they buy less fuel-efficient cars and drive longer distances.

To be clear, the surcharge should be applied to the value of the commercial activity itself, not the value of what’s being transported. For example, whether it costs $1 to transport a ton of rocks one mile or $1 to transport a ton of gold one mile, the surcharge should be the same — eight cents. After all, the roads don’t know if you’re shipping rocks or gold, but the wear and tear would be the same.

The most obvious way to identify a company’s commercial activity on the highway is to apply the surcharge to what that company charges their customers for transportation services. The surcharge would only apply to commercial activity on the street or highway. Shipping that combines rail, air and truck transportation would only have the surcharge applied to the highway portion. (The more difficult case is a company like Walmart or Amazon that ships its own products, but even they maintain figures for their shipping costs.) These are numbers that companies routinely have in their accounts already. As a result, the surcharge would also be relatively easy to collect, since it could be assessed at the time of companies’ quarterly federal tax filings.

A conservative, preliminary estimate of total commercial activity that would be subject to the surcharge is $960 billion, which would produce an estimated $76 billion annually — enough to have a significant impact on the needed construction and upkeep of the nation’s roadways and also invest in electric charging and hydrogen fuel infrastructure.

Unlike the gas tax, this amount would be sensitive to inflation and economic trends. The revenue from a commercial activity surcharge would be immune to how the national vehicle fleet is fueled. And of course, the political benefit of removing the unpopular federal fuel tax for 225 million licensed drivers should not be overlooked.

Don’t assume that businesses will see this as a job-killing tax. Many businesses and organizations have been calling for raising the fuel tax, some significantly. Both the American Trucking Institute and the U.S. Chamber of Commerce have called for raising the fuel tax to provide needed investment in the system. Businesses know that a deteriorating transportation system, both in condition and performance, is a drag on business operations for which they bear the cost. They lose billions of dollars in lost time and repairs of damaged equipment every year. Investments in transportation create jobs and produce efficiencies, such as dependable deliveries and reduced accidents.

Finally, a commercial activity surcharge makes sense constitutionally. Historically, justification for federal support of transportation has been through the Interstate Commerce Clause of the Constitution. Applying the surcharge to actual commerce conducted on public roadways not only solves the long-term fiscal crisis facing America’s roadways and more fairly allocates the cost with the benefits, but it also better aligns our revenue system with the constitutional intent of our forefathers.

A commercial activity surcharge is easy and fair. It’s time to ditch the gas tax for good.