Government

The Infrastructure Bill Will Look Into Taxing Motorists For Every Mile We Drive

The VMT is controversial because it raises privacy concerns, and it is unclear how it will be applied fairly.

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With the passage of the new infrastructure bill, it looks like the federal government will start a pilot program to study the feasibility of a vehicle mile tax or VMT. The purpose of the VMT is to charge a tax for every mile driven to fund the Federal Highway Trust Fund which is in danger of being insolvent.

In a way, we already have a mileage tax because gasoline is taxed at the federal and state level. But since every car’s gas consumption is different, cars with low fuel consumption are taxed less while gas guzzlers pay more. Similarly, slow and conservative drivers probably pay less taxes because they are likely to use less gas than the fast and furious drivers. So from a policy perspective, this makes sense as it incentivizes sensible driving with fuel efficient vehicles. But there are a significant number of Americans who care more about top mph than mpg or prefer the safety and practicality of gas-thirsty SUVs.

In recent years, the Highway Trust Fund has been losing money for several reasons. First, the federal gas tax has not been adjusted for inflation while road maintenance costs have. Second, more people have been buying electric cars that require no gasoline so it is arguable that they are not paying their fair share for road maintenance. Third, young people have generally been driving less. Lastly. the COVID-19 pandemic and the resulting lockdown orders last year have increased remote work from home and this will likely stay to some degree.

The VMT in theory is supposed to alleviate some of the unfairness by charging a fee for every mile driven. While the fee is estimated to be a few cents per mile, the miles can add up very quickly. A five cent per mile fee could be $1,000 for someone who drives 20,000 miles.

The pilot program will solicit volunteers from diverse areas in all 50 states, Washington D.C., and Puerto Rico. These volunteers will install a mileage tracking program in their cars. The bill states that mileage can be tracked a number of ways including smartphone apps, third-party on-board diagnostic (OBD) devices, and data collected by automakers and insurance companies.

The amount of the VMT will be based on the type and weight of the vehicle based on their estimated impacts on infrastructure, safety, congestion, and the environment.

Additionally, the bill will create an advisory board composed of representatives from the auto and transportation industry, consumer advocates, and privacy experts. This board will provide recommendations for implementing the pilot program.

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The VMT is controversial because it raises privacy concerns, and it is unclear how it will be applied fairly. Some will not like the idea of the government tracking where they drive, particularly when law enforcement can get involved.

A flat VMT is generally seen as a regressive tax and will negatively impact working-class people who live paycheck to paycheck and must commute to work.

On the other hand, implementing a progressive or structured VMT can get complicated. For example, it is easy to say that heavy trucks should pay a larger VMT because their massive weight creates more wear on the roads. But the fees the truckers pay will be passed on to the customer through increased shipping costs. So who really pays the VMT here?

Another idea is to charge a VMT proportionate to the price of the car. While the owner of a hypercar like a Bugatti, McLaren, or Ferrari probably won’t care about paying an additional VMT, this will not work as well as people think. This is mainly because these cars are rarely driven because they are impractical for daily use. Also, low mileage supercars usually appreciate in value over time so that creates another disincentive to drive them regularly. And a lot of times, these cars are driven in private racetracks or drag strips instead of public roads. Would it be fair to charge a VMT for this kind of use?

I can also foresee that the government will have a hard time finding volunteers for the pilot project, even if they are compensated for their contribution to the research. Those who oppose the VMT either due to increased cost or privacy issues are probably not likely to participate.

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So what are the alternatives to the VMT? First off, the federal gas tax should be adjusted for inflation although this can create issues thanks to a certain petroleum cartel. Perhaps there should be a separate surcharge for automotive items that need to be regularly changed. This includes things like motor oil, transmission fluid, and tires. The prices of these products are adjusted for inflation and the likely modest price increase will probably go unnoticed. Also, it would incentivize slower, safer driving as doing so would reduce the need for changing tires and fluids. As for electric cars, since their use has generated an increase in public utility revenues, some of the money generated should be transferred to the Highway Trust Fund.

The VMT is complicated, but one thing is clear: this is a tax increase. The bill even states that its goal is to increase revenue to fund the Federal Highway Trust Fund. It’s just a matter implementing the pilot program that will draw the least complaints and collateral effects, such as increasing the price of a Big Mac.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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