US looks to fill fuel tax gap as drivers go electric

Mileage taxes under consideration as governments look to pay for road upkeep

The increasing adoption of electric cars in the US is causing a headache for state and federal authorities, who are watching revenue evaporate from the petrol taxes that pay for America’s roads and bridges.

To help plug the shortfall, which this year could top $16 billion, President Joe Biden’s administration is looking at the feasibility of new charges that would tax drivers for kilometres driven instead of at the pump.

Tucked into the bipartisan infrastructure bill Congress approved last week after months of debate is a provision to fund a five-year study into mileage taxes.

The bill states that the $50 million study would “test the design, acceptance, implementation and financial sustainability of a national motor vehicle per-mile user fee”.

One industry estimate shows that as many as 18 million electric cars — about 6 per cent of the total — could be on US roads by 2025 and that the proportion of electric vehicles will expand quickly beyond that point.

A dozen states, including California, the nation’s most populous, have said they will ban the sale of new petrol and diesel-powered cars by 2035.

Experts say this amounts to the end of the road for the current taxation model.

“Our transport is paid for by gas taxes,” Barb Rohde of the Mileage-Based User Fee Alliance told The National.

“All the money from these taxes goes to the Highway Trust Fund which is now in serious danger of going broke.”

Pointing to General Motors, which has announced it would only make electric cars from 2035, she said alternative taxation systems must be tested.

But in the US, where any talk of new taxes is often seen as political heresy, changing the outdated system is a political minefield — especially for Mr Biden, who has promised that no one earning less than $400,000 a year would pay more in taxes.

In March, Transport Secretary Pete Buttigieg said a mileage tax showed “a lot of promise”, but he soon backtracked amid criticism from conservatives, saying it was “not part of the conversation”.

Privacy is also an issue, with any tracking of cars certain to cause an uproar in a country where many are deeply suspicious of the federal government.

Drivers in rural areas could also find themselves at a disadvantage and pushback from politicians representing these places has already begun.

Mike Crapo, a Republican senator from Idaho, told The National he was opposed to a universal vehicle mileage tax.

“Taxes based on miles travelled would unfairly target industries needing to transport goods and services long distances, like the agriculture industry in Idaho as well as those living in rural communities,” he said.

Analysts question whether switching to a mileage charge would ever pass Congress.

“The concept is politically impossible while the filibuster exists or if Republicans are in charge of any chamber,” said Brandon Barford, partner at Beacon Policy Advisers, a Washington-based political research company.

“The reason they have never raised the gas tax or indexed it is because it is politically unpopular. Technocrats think the vehicle mileage tax is a good idea — but that is because they’ve never had to run for office.”

The federal government has not increased the motor fuel tax since 1993, a massive reduction in real terms that has been compounded by greater fuel efficiency and the rise of electric vehicles.

In 1994, a passenger car averaged 33.3 kilometres per gallon (3.8 litres) of petrol. By 2018, the figure had risen to 39.2.

The money from fuel taxes is used to pay for the upkeep of America’s highway network, but it is no longer enough to maintain the 260,000 kilometres it covers.

A study by the Tax Foundation last year calculated drivers needed to pay an extra 1.7 cents a mile (2.7 cents a kilometre) to make up the shortfall just to maintain the existing network, let alone improve it.

The funding gap is widening even as the federal government offers tax credits of up to $7,500 to drivers who buy a plug-in electric car.

Road pricing has been around for decades, primarily as a means of tackling congestion. The first scheme was in Singapore’s central business district in 1975.

In Britain, congestion charges were introduced in Durham in 2002 and London the following year. Other major cities including Stockholm and Rome have adopted the fees, and they are under consideration in New York and San Francisco.

But a national pricing scheme covering all roads is far more ambitious and politically more difficult, even though Germany has been charging lorries per kilometre since 2005, with costs varying on emissions and the number of axles.

In Britain, the Labour government proposed mileage charges in 2005 — 41 years after the idea was first floated.

But motorists rose in revolt, with 1.8 million signing a petition in which the proposals, supported by Tony Blair, were eventually dropped.

In the US, states are looking at other ways of recouping lost fuel tax revenue from electric car owners, with a series of taxes in place, including registration fees of $200 in Washington, Alabama, Arkansas, Ohio and Wyoming.

Idaho has gone further, giving drivers the choice between paying $300 a year or 2.5 cents per mile (3.2 cents per kilometre).

Rick Geddes, a professor at Cornell University’s Department of Policy Analysis and Management, believes the change would have Americans paying for road use in much the same way as other utilities.

“Gas taxes were a good way of paying for infrastructure, but it has become unsustainable because people are adopting electric vehicles at a faster rate than was ever expected.

“Technologically, it is viable, but politically, it’s a question of how much pushback there will be.

“I think it is just a matter of time.”

Updated: November 10th 2021, 5:33 PM
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