Once Again, We Need to Ask: Is the Gas Tax Obsolete?

By Christopher Hopkins

In December 2011, I wrote an article creating a conversation about the federal gas tax becoming obsolete. This was due to the popularity of hybrid vehicles and the industry making more fuel-efficient automobiles. This was prior to the electric car industry taking off.

I was lobbying Congress that fall, posing the rhetorical question about the gas tax being obsolete, what could we work towards to take its place, and predicting that if the electric vehicle market took off, there would have to be a transition away from a federal excise tax on gasoline. One of the suggestions I proposed was transitioning to a mileage tax. You would pay X amount based on the number of miles a vehicle was driven over the course of a year.

A driver could be billed monthly or yearly. It was all a blank slate at the time and wide open for new ideas. The one idea I would not back away from was that as fuel efficiency continued to grow and if electric cars became popular, there would create an unbearable burden on how we paid for repairing the current infrastructure and building the new infrastructure necessary to make the United States a world leader in production again.

The conversations did not go well. In about 15 Congressional and Senate offices no one would even consider that it was a problem. More so, not one person in Congress would touch a new mileage tax with a 10-ft. pole, even if the gas tax was phased out. It seemed fair to me, the more miles you drive, the more wear and tear you cause the roadways, so therefore you should pay more. This would make the excise taxes you pay on a vehicle, essentially a user fee.

It also adjusted the unfair practice of charging a gas tax to vehicles and equipment that would never see a public road, like tractors, lawnmowers and farm equipment. The owners of these vehicles were all paying for upkeep on roads that their equipment never touched.

Mission in Vain
It was a mission in vain, meetings were rushed, with no staffer taking notes. This was not a serious problem that was being brought before them. No member of Congress wanted to be labeled as a “tax and spender” by their political opponents so Congress as a whole, chose to take the easier route, kicking the can down the road, (no pun intended). It has been simply the lack of political courage that has prevented anyone from addressing this issue.

Now it is 2021 and we are beginning to see the results. Currently there are 1.74 million electric cars on the U.S. highways. None of the owners of these vehicles are paying anything for the maintenance of the roads they drive on. There have even been tax credits given for the purchase of an electric vehicle.

There is also a second issue that has contributed greatly to the crisis and yes, it is becoming a crisis. The federal gas excise tax is currently 18.1 cents-per-gallon, the same as it has been since 1993. Given the inflation since 1993, that 18.1 cents-per-gallon tax has lost 50% of the purchasing power it had when it was passed.

The combination of these two problems is that the federal revenue dedicated to build and maintain our infrastructure has been running at a deficit since 2001. The deficit is growing every year and Congress has been supplementing the fund. Between 2008 and 2010, Congress had to transfer $35 billion to keep the Highway Trust Fund solvent. Between 2016 and 2020, Congress had to allocate an additional $70 billion in transfers from the general fund. This was the Fixing America’s Surface Transportation Act (FAST Act) that was passed in 2016 and expired in October 2020.

Kicking the Can
In October 2020, Congress once again kicked the can down the road as they extended the FAST Act for a year with an infusion of $13.6 billion for 2021. A year-to-year solution is no way to run this program. And an increase in the federal gas excise tax, if Congress has the courage to pass that, is only a temporary solution. The Congressional Budget Office is predicting that this trend will continue with a 1% annual drop in gas tax revenue.

In addition to the 1.74 million electric cars on our roads currently, there are 68,000 new electric cars entering our roadways each year, so let’s do the math. The average car in the United States travels 13,500 miles per year and the American car averages approximately 25 miles to the gallon.

For each new electric car that replaces a gasoline powered vehicle, there is a loss of $97.74 annually to the Highway Trust Fund. That does not seem like a lot of money but let’s continue with our math. With the 1.74 million electric vehicles on the road, that is a yearly loss to the trust fund of $170.06 million dollars, and that is without figuring the loss of the buying power each year trying to pay today’s bills with revenue from a 1993 tax.

Now you add on the additional new electric cars per year and that is an additional $6.64 million that is deducted from the trust fund each year. If we simply look at 10 years, without counting the rise in the percentage of electric cars being purchased each year and in 10 years, that will be an additional $66.4 million is reduced from the Highway Trust Fund each year. We have not even considered that General Motors has a goal of having an all-electric fleet of vehicles by 2035.

All of this as our infrastructure deteriorates and we are not able to keep up with the maintenance, let alone building the new infrastructure that is needed as a country to compete globally and maintain our quality of life. I will remind you that we did not even take into consideration the individual state gas taxes that are experiencing the same crisis.

Mileage Tax
There are currently two states running programs transitioning from a gas tax to a mileage tax, Oregon and Utah, about as diverse states as you can chose. The Oregon program was started in 2015 on a purely voluntary basis but are considering legislation that would make the program mandatory for electric vehicles and all gas powered vehicles that average over 30 miles-per-gallon by 2026.

Utah began their program in 2020 and has already enrolled more vehicles than Oregon. There are 12 more states currently considering similar programs. While Congress will not consider this transition on the federal level, they have issued millions of dollars in grants to states who wish to explore a mileage-based program.

Congress needs to begin to address the crisis. First, they have to admit that it is a crisis and realize that the federal excise tax on gas is rapidly becoming obsolete. Second, they have to muster the political courage to begin transitioning from the gas tax to a Vehicle Mileage Tax (VMT) almost immediately.

Partisanship needs to be put aside on at least this issue. You cannot be waiting to pounce on your political opponents for bringing this issue up and trying to work out a way to implement it. Very few congressman and senators will risk their political future to champion an issue that will have their political opponents waiting to attack at the first mention of an economic transition that needs to occur for the good of the country.

We are in a crisis and the entire country needs to realize it. We need to begin working together to fend off this impending doom that could be heading our way.

Christopher Hopkins is president of River Landing Solutions. He has spent the past 20 years working exclusively with corporate clients navigating regulatory issues. He has run corporate campaigns in 36 states and five foreign countries managing more than 250 regulatory campaigns for construction material companies, mining companies, commercial developers, gaming companies and philanthropists. He can be reached at [email protected].

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