Mixed Messages on Auto Use

We wrote not long ago about the various negative externalities produced by driving — congestion, pollution, accident risk, etc. — and how pay-as-you-drive insurance might help impose the true cost of driving on each driver.

Now a reader named Larry Holt, the director of research of the Birmingham (Alabama) Regional Chamber of Commerce, writes in with an interesting point about a quiet incentive that encourages people to put on the miles:

I traveled to Atlanta last week for a conference, and as it’s nearby, I simply drove. So when I got back, I of course filled out my mileage report, and did pretty well: $159. We, like many other companies pay according to the I.R.S. mileage rates: 50.5 cents a mile.

It struck me though how much this flat reimbursement subsidizes our driving choices somewhat similarly to the free parking hypotheses.

It’s interesting that while at the same time the stated policy of the U.S. Highway Administration is to reduce congestion, you have another arm of the government, the I.R.S., continually bumping up the mileage rate. Here’s a link showing that it’s gone up from 36.5 cents since 2002.

One side note: With just about every U.S. airline in trouble and therefore resorting to cutting routes and raising fees, people will be even further incentivized to take long driving trips — even while gas prices continue to rise (though not nearly high enough for guys like this).

And here’s another case of mixed messages on auto use, or at least mixed incentives: The U.S. Department of Transportation has issued a press release saying that Americans have started to drive considerably fewer miles than before.

You’d think this would be mostly good news, right? Not quite: “That Americans are driving less underscores the challenges facing the Highway Trust Fund and its reliance on the federal gasoline excise tax,” said Acting Federal Highway Administrator Jim Ray.


Eric

To those who are complaining about less flying options incentivizing driving - jet fuel is worse for the environment than auto fuel, not to mention all of the fuel burned to get you to the airport, your plane ready and your luggage on board. The best incentive is higher gas prices and higher gas taxes as they directly lead to people wanting to use more fuel efficient vehicles, to car pool and take public transit. Cost too much to fly and gas too much to drive to see your college buddy 3 states over? You probably will forgo the trip instead. In terms of the environment, higher fuel prices are a good thing. I'd be interested to see studies on temperature change now that overall fuel emissions are decreasing due to high costs. Remember that the temperature actually increased after 9/11 when most planes were grounded due to less contrails and aerosols in the air blocking the suns heat rays.

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one more no-brainer

this is an easy one. wanna reduce conjestion? Make it worth our while. Believe me, there is a point when driving over a bridge to get to work is cost-inefficient- when it's costing me more than I am making. that's when I start using public transportation. And then take all the profits and put them into fuel efficient or electric trains- nothing like a breezy train ride to clear the mind of the cobwebs.

Bryn

#14 - one more no-brainer - why wait until it costs you more than you are making? Why not switch to public transportation when it costs more to drive than it does to take public transit?

Nancy

Of course cuts in airline service are "incentivizing" people to drive more! If an airline eliminates all of its flights to your destination (as they've now begin doing), your choice is to either drive, go Greyhound, or take the train. And driving is the preferred choice of the three, especially since bus and train service have some of the same limitations as plane service (limited service, inconvenient schedules, etc.).

Also, if you're travelling with a group of people, going by car is often more economical. Costs associated with car travel are pretty much the same whether there's one passenger or five; this isn't true for planes, busses and trains.

Gary

Has anyone considered that those of you making money on this... you're an example of how the mileage rate has inspired fuel efficient choices? By driving a Prius, you accomplish a number of important tasks: Your car is smaller and lighter, putting less strain on the roads and bridges than say the new Explorer (which is massive), you use less fuel, and you help fund development in fuel efficient technologies. For all this good, the IRS is essentially giving you a profit incentive.

The mileage rate is based on an "average" car. So pollution and congestion are implicitly included. One who drives a smaller than average, more fuel efficient car can essentially turn a profit, while the Hummer driver doesn't break even. (This of course neglects the fact that the Hummer driver doesn't realize this... if they were smart enough to realize it, they wouldn't drive a Hummer to begin with).

This is really no different than the IRS providing "bonus depreciation" which gives companies an incentive to make capital improvements sooner rather than later through tax benefits.

Keep in mind too - the IRS provides incentives for the use of mass transit. Its also worth noting, with the Highway Administration is complaining about congestion, the DOT refused providing federal funding for extending Metro Rail service much further into Virginia, because the planning commission wanted to make public transit appealing...

@8 - No. He's convinced he's superman and is invincible. He thought he could do a 500 mile ride on a sports bike at 50 years old... his allusions of invincibility were set straight at the chiropractor the following week. That said, in the hands of an experienced [read: defensive] rider, the difference in risk is fairly small.

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Neil

Good comments about the value of time. When I started by current job, I considered taking public transportation; however, it is a hour trip each way, but only 15 minutes by car. I figure I spend about $3.80 in gas each day to get to work (gas is about $5.20/gallon (in Vancouver, BC) and I drive about 8 miles each way). Compare that to spending $7/day on buss fare, and its a no brainer. I realize I also insure my car, and I have maintenance costs, but my time is still worth a lot to me.

I think gas will need to get to $9-10/gallon before I get on a bus.

Chris

@Gary - Did he factor in the added cost created by the increased risk of driving a motorcycle?

mfw13

The real issue to me is why nobody is talking about how to reduce energy demand by decreasing the need to drive to and from work. There are literally millions of people out there who could do their jobs just as effectively working from a home office but are forced to commute to work by short-sighted employers and bosses. Here in Seattle, for example, overall miles driven would probably drop 5-10% if just one company, Microsoft, let more of its employees telecommute.

Additionally, companies with multiple work locations (banks, retailers, fast-food chains, etc.) need to be incentivized to move workers to locations closer to where they live, which would also reduce commute miles driven. I did an informal poll of the workers at my local Starbucks, Albertsons, and Bank of America branches, and more than half said that their employers had a location closer to where they live.

Unfortunately, most of the discussion about energy poicy these days is about how to increase supply, not how to reduce demand.

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Steve

This reimbursement should only be for transportation that is above and beyond the normal work related commuting. I have positioned myself to take advantage of public transportation to my regular place of work but do get mileage when I am forced to travel outside of this.

Unfortunately, many employers conspire to award untaxed compensation to their favoured employees (and especially officers of the company) by paying mileage for what is regular travel to work and by paying exhorbitant rates. I know of someone who got $3,100 for a days driving.

Meanwhile, the federal government has created perverse incentives to buy expensive gas guzzlers for business use.

Time for a rethink once Dubya is indicted.

Bryn

I ride the bus to work in the next town over from me. Whenever gas prices go up, I see another 4-5 new faces on the bus each week. It's actually starting to be necessary to share a seat on occasion, and eventually it'll be the norm. Even with buses every 20 minutes or so, however, there are still way more single-occupancy cars making the same exact trip I am. I've calculated it out, and when I pay for the bus, I'm saving roughly $3/day (including parking fees), and I get to read (or knit, of course). I also don't have to deal with traffic stresses, accidents, or finding a parking space.
I've driven a whopping 6000 miles in the past 6 months, and that counts numerous weekend trips and errands around town and 6 weeks when I did have to drive to work for assorted reasons.
Fewer oil changes, less car insurance (you don't pay as much when you don't use it for commuting), less wear-and-tear on yourself and the car... all of these are reasons to take the bus.
I know that I'm lucky to have a bus that goes exactly where I need it to, and around here, this is definitely a rarity. It shouldn't be.

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MM

@DJH Long term -- and short term where possible -- we need to arrange our residences, workplaces, retail establishments in closer proximity. Given the current world population - subsistence agriculture is a red herring.

Building communities that are closely connected and accessible by means other than private internal combustion engine vehicles could be a big contribution to energy and environmental problems.

Right now people are making these choices -- buying homes in urban areas, where walking bicycling and transit make sense -- and letting sprawling suburbs languish.

Dan

I love the mileage reimbursement. It probably costs me about 30 cents a mile to drive my Corolla, so every mile I drive for work gets me 20 cents of tax-free income. Other people at my company think the same way. Not surprisingly, carpooling is unheard of around here.

scott

I think Mr. Holt has a point. I understand depreciation and wear and tear on my car. And I understand how the IRS determines the reimbursement rate. But I drive a Prius and live in Houston. I make one trip to downtown and back, barely move the needle on the gas gauge, and the reimbursement essentially fills my tank and keeps me going for a month.

I don't see that the IRS has much choice in how they set the rate. Maybe as the overall fuel economy of the national fleet increases they can use that to curb the upward push created by increasing gas prices?

DJH

Transportation expends energy. At the moment, since we do not have solar- or fusion-powered cars, and sail-cars won't be much use, that means we cannot get around without burning fossil fuels. Mass transit is nice, but it still requires the burning of fossil fuels.

Currently, however, we have no choice BUT to move around. To our jobs, to the store, etc.

I'm getting the idea that the only solution that some people will find acceptable, is to abandon everything and return to a subsistence agrarian economy. This way we don't have to go anywhere, we just walk outside, till the soil and live on whatever we can grow in our yards. We can use beasts of burden in the place of powered farm machinery (tractors, etc.). Transportation then becomes unnecessary.

Of course, nearly all industry and commerce would grind to a halt. We probably would no longer need electricity or other utilities, which is just as well since a lot of fossil fuels are burned in the process of operating those.

I have no idea how this could possibly support a nation of 300 million, but if eliminating the burning of fossil fuels is the goal, then that's the way we have to go. Nothing else will cut it.

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Patrick Austin

Ultimately, this all comes down to land use choices, and again there are federal programs that are working against each other. Most driving is done during a commute, and long commutes are the norm. The incentives to live in the outer ring suburbs are too great: cheap land with fewer zoning restrictions, lower insurance rates, better schools, historical and current federal policies that encourage suburban growth, etc.

It's a gross simplification, but: (Cost of Living in Suburbs at a fixed standard) + (Cost of commuting)

Ben

@Gary

But does that cost factor in the negative externalities of "congestion, pollution, accident risk, etc."?

time out for re-thinking efficiency expert

Dear Bryn; good question. the answer is - time (not fuel) efficiency. When I can get home in record time to get snack ready for vorcacious teen- I see an advantage to driving- if coming home later means I cannot provide the snack- she'll have to fix her snack herself even if we lose that precious time together.

Gary

Most companies use the full IRS mileage rate to reimburse employees because the IRS has determined the TOTAL cost of driving 1 mile is 50.5 cents. What many fail to realize, is the reimbursement isn't just compensation for gas, its also intended to cover the share of all fixed and variable costs associated with these miles. Many companies (and non-profits) use a reduced rate, because they feel the IRS prescribed rate is too high. Many employees think this is easy money, they fail to see that while 50.5 cents a mile seems awesome, when you're putting an extra 10,000 miles a year on your new BMW, depreciation and maintenance is going to catch up with you sooner or later.

My Dad has cleverly beaten the system. He puts most of his work mileage on his motorcycle. Better fuel economy, cheaper maintenance, less depreciation, cheaper insurance.

Steve

Fifteen years ago, I had nearly free underground parking. Suddenly, I was without a car after an accident. I found that, at the end of the workday, I was usually home using public transit before I would even exited the parking garage! Occasionally, I need to remind myself of this fact.

SciEd

The comment by Jim Ray of the Federal Highway Administration reminds me of a request a few years back by utilities asking customers to conserve. When the customers actually did conserve, the utilities asked for a rate hike, based on the fact that their the annual revenue requirements were not met. The customers learned that whether they conserved or not, the payment would end up being the same, so why conserve?

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