On the Road to Smarter Taxation

One of the basic tenets of the American Whigs was the belief that the federal government ought to prioritize internal improvements over (for example) military adventurism abroad. Thus, it is in keeping with this whiggish creed to attend to the problems of infrastructure in our society.


As the reader may know, roads and bridges across the nation are falling into disrepair. In theory, gasoline taxes pay for the maintenance of this infrastructure. However, gas taxes are bringing in less revenue than they have in the past. In part, this is because the pauperized American people can no longer afford to drive. In part, it is because the tax has not risen with inflation since 1993. And in part, it is because our estimable leaders have required that new cars exhibit ever-greater fuel economy. According to CNBC, this has encouraged state and federal officials to consider a vehicle mileage tax of one form or other (source).

The same CNBC report notes that plans are being discussed to impose a special tax on electric vehicles. Since owners of these vehicles aren’t paying their fair share of gasoline tax, this new tax will put an end to the freeloading ways of Prius drivers everywhere. Will this have an impact on whether or not Tesla Motors will be able to sell enough electric cars to pay back its federal loan? It remains to be seen.

Because taxation, like death, is inevitable, one can’t simply wish that gasoline taxes would go away entirely. A more modest hope is that taxation could be done differently.

Our crumbling infrastructure

A vehicle mileage tax (VMT), if properly executed, is an intelligent approach to collecting revenue. It is a Pigovian tax (named after economist Arthur Cecil Pigou) and designed to alleviate and/or recoup the losses incurred when an economic activity creates negative externalities. A negative externality is any social cost that is a byproduct of an economic transaction. For example, if someone decides to build a rubbish incinerator in his back yard, a social cost is borne by his next-door neighbors. In some cases, ordinances exist to deter public nuisances and disturbances of the peace, but in other cases, negative externalities exist and there is little to be done about them.

Minnesota, a few years back

A simple VMT consists of taxing vehicles based on mileage. Vehicle odometers are becoming less amenable to tampering as technology advances and the tax could be collected each time the car is inspected. The problem is that this approach is not very comprehensive in terms of counteracting the many externalities that attend driving. I suggest that there are four particularly important factors: (1) the number of miles a vehicle is driven each year, (2) the vehicle’s size, (3) vehicle weight, and (4) fuel efficiency. Examples include:  

Wear and Tear: People who choose to drive very heavy vehicles inflict more damage on bridges and roads than people who choose to drive lightweight vehicles; thus, it is fair that drivers of said vehicles pay a mileage-based tax which factors in vehicle weight (perhaps, a surcharge for every half ton over 3 tons);

Pollution: Fuel inefficient vehicles emit a greater amount of carbon dioxide than fuel efficient vehicles, leading (if one believes in fanciful things such as science) to climate change. As the climate changes, more damage is inflicted on roads and bridges; owners of inefficient vehicles could pay a mileage-based surcharge based on carbon emissions;

Global warming increases the maintenance cost of infrastructure

Waste: If a car is not fuel efficient, it will deplete the earth’s finite oil reserves; aside from the obvious social costs of wasting gasoline, it is worth noting that pavement is an petroleum-based product, and the more scarce crude oil becomes, the more expensive it will be to repair and maintain roads;

Traffic Congestion: If people use cars to make unnecessary trips, or use cars instead of public transportation, they are contributing to traffic congestion; traffic congestion leads, in turn, to increased pollution from idling vehicles, lost productivity, and the danger that emergency vehicles will be delayed in transporting critically injured individuals to the hospital;

Parking Congestion: If people buy large cars, they will consume a greater share of the finite resource known as a parking space;

Danger to Others: It has been noted that, “The fatal crash rate for large trucks is 2.4 deaths per 100 million vehicle miles traveled - more than 50 percent greater than the rate for all vehicles on the roads.” Also, “People in passenger vehicles are especially vulnerable in collisions with large trucks because of the great difference in weight between cars and large trucks. In two-vehicle crashes involving passenger vehicles and large trucks, 98 percent of the fatalities were occupants of the passenger vehicle (source).”

Misadventure: Apart from collisions with smaller vehicles, large vehicles are prone to mishaps that lead to increased traffic congestion and increased demand for the services of public safety personnel;

Vehicular Misadventure

Folly: Some large, fuel inefficient vehicles are simply unnecessary. They are a frivolous and ineffective means of compensating for male under-endowment.

To address all of these externalities, one may devise a VMT which takes into consideration not only the number of miles driven but the size, weight, and fuel efficiency of the vehicle. Smaller, lighter, more fuel efficient vehicles would be assessed a lower mileage tax than large, heavy, inefficient vehicles. Allowance could be made to offset the burden on people who commute to work, and for low-income individuals.

Would the Founding Fathers have approved of a VMT? If one views the VMT as a kind of toll, the answer is yes. Benjamin Franklin and John Adams championed the construction of the Erie Canal. Even Thomas Jefferson, who initially ridiculed the idea, later acknowledged it to be “the finest invention of the present age (source).” Operators of the Erie Canal used tolls to pay off, in only 12 years, a loan of 7 million dollars (source). In time, the canal became an important source of revenue for the state of New York (source). Franklin favored optional payments (such as tolls) because individuals who wish to be frugal can avoid the toll (in this case, by driving less). What one pays is based on what one consumes, and it creates an incentive for behaving in ways that are less destructive to our infrastructure and our environment.

Vehicular Folly

And today, a highway project is no longer viewed as a means by which governments may raise revenue without having to resort to new taxes. Instead, one of two scenarios is likely to occur. In the first scenario, financial firms such as Goldman Sachs provide the capital in exchange for revenue from tolls (source).  

In the second scenario, federal highway projects are a means by which members of Congress can bring money to their home states (while pocketing some of it in the process). According to the Center for Public Integrity the federal government, “pumps massive sums of money into disjointed, low-priority, and often ill-defined projects.”

As a result, “America’s surface transportation system — like the funding and policy decisions behind it — desperately lacks any sort of national vision. More than a hundred disparate federal programs constitute a maze through which billions of dollars pass in and out of Washington each year, chaotically making their way back to America’s cities and towns (source).”

Thus, corrupt government is unlikely to adopt a VMT which serves the public interest. Rather than attempting to reduce carbon emissions or dependence on foreign oil, any new tax or increase in existing taxes will likely function as yet another means by which wealth is transferred from the many to the few.  

For more on carbon taxes, go here