The Downside of More Miles Per Gallon: A New Marketplace Podcast

(Photo: Joel)

Our latest Freakonomics Radio on Marketplace podcast is called “The Downside of More Miles Per Gallon.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

The gist: the Federal gas tax is a primary source of infrastructure funding but, politically, it has proven a hard tax to increase. Furthermore, because the tax is a fixed amount (18.4 cents per gallon) rather than a percentage, gas-tax revenues don’t rise even when gas prices do — as has been happening lately.

Even worse, as modern cars travel further on a gallon of gas (good news, right?), they contribute even less money for the roads they travel. And cars are going to get even more fuel-efficient.

So what’s to be done? Some politicians want to get rid of gas taxes in favor of an increased sales tax — which, Eric Morris argues, is a bad idea, since it shifts the burden to non-drivers.

A more promising idea, under exploration in many areas, is to switch to a tax based on how many miles you drive.

Then there’s the option of fining traffic offenders based not on how badly they were driving but on how much money they earn. If nothing else, this might be a great jobs program, since high earners would have a very strong incentive to hire lots of chauffeurs.

(HT on VMT tax: Kevin Murphy)

Audio Transcript

Kai RYSSDAL: Time now for a little bit of Freakonomics Radio -- that moment in the broadcast every couple of weeks where we talk to Stephen Dubner, the coauthor of the books and the blog of the same name. It is “the hidden side of everything.” Dubner, how you been man?

 

Stephen J. DUBNER: Great Kai, thank you. Been thinking about you. You drive a lot out there in California, right?

 

RYSSDAL: It’s L.A. baby.  Of course we do!

 

DUBNER: What are you paying for gas these days.

 

RYSSDAL: Oh, a lot!  It’s over four bucks a gallon.

 

DUBNER: So people generally don’t like that, even though relatively we pay pretty cheap gas. The good news, however, is M.P.G. -- miles per gallon.  We are now at a point where we get more miles per gallon of gas than any time in history, about 24 miles on average for the U.S. car fleet. And that number because of federal regulations is going to go up quite a bit in coming years. So great news, right?

 

RYSSDAL: Great, yes. Now, what? With you it’s always good news, bad news, dude. What do you got?

 

DUBNER: Well, let’s go a little deeper. Fuel economy goes up, which means what? It means that the cost of every mile you drive goes down. So people have an incentive to drive more, which can lead to more congestion, more risk of accident, but there’s an even less obvious problem than those. Where do we think the money to build and maintain our roads all comes from? Here is Jaime Rall from the National Conference of State Legislatures.

 

RYSSDAL: Okay.

 

RALL: And right now, the nation relies extremely heavily on gas taxes for transportation funding and advancements in fuel efficiency pose some real problems for transportation budgets.

 

RYSSDAL: If you follow the logic train here, it’s people are using less gas because cars are more efficient, and then there’s less tax revenues being raised to pay for the road.  Right?

 

DUBNER: You got it. Revenues are hurting. But it hurts additionally because the gas tax is such a strange tax. Instead of being a percentage of, you know, whatever, two percent, five percent per gallon, it’s a fixed rate. So the federal rate is 18 cents a gallon. States add their own state taxes on -- again, a fixed rate. But because it’s fixed, unlike, let’s say, a sales tax, you don’t raise more tax revenue when the price of gas goes up.  So every year, what happens is gas tax revenues lose purchasing power.

 

RYSSDAL: All right, so this is one of those gotta-ask-it questions even though I know the answer.  Why not just raise the gas tax?

 

DUBNER: It would seem logical.  Many economists have been lobbying that for years. But politically, for whatever reason, the gas tax is one of these things that’s just a no-go zone.

 

RYSSDAL: All right.  So find me the Freakonomics way out of this then.

 

DUBNER: Well, let’s go down a wrong path first, shall we?  I hate to pick on politicians, but the governor of Virginia, Robert McDonnell has an idea that seems like a pretty bright idea, but most economists would say it’s not bright at all.  What he wants to do is eliminate the state gas tax in Virginia and make up for those funds by raising the sales tax.

 

RYSSDAL: And that’s a bad idea because ...

 

DUBNER: Because a tax is most fair when it hits the people who should pay it, but leaves everyone else alone.  Right?  But what Gov. McDonnell is doing is flipping that logic.

 

RYSSDAL: All right.  So hit me with your plan.

 

DUBNER: Well there is a growing movement -- I don’t know how well this would work -- but the idea is this: to tax drivers the way they probably should be taxed, which is per mile driven.  So that way, you’d pay the same amount for the roads whether you’re driving, you know, a gas-guzzler, or an electric car that doesn’t use any gas at all. Here’s Jaime Rall again.

 

RALL: At least 18 states have pursued pilot projects. And in the past five years, legislatures in at least 11 states have considered more than 20 proposals to establish or study state level fees of this kind.

 

RYSSDAL: Yeah, you know what though?  This smacks of Big Brother watching me when I drive, dude.  Knowing where I’m going.  Right?

 

DUBNER: Yeah, people will not like this idea, in many cases.

 

RYSSDAL: They’ll go nuts!

 

DUBNER: On the other hand, let me just say this: we’ve all gotten used to willingly carrying around a GPS device with us at all times, which is what a smartphone does, right? We’re also getting used to the ideas of electronic tolling where we don’t have to stop at the booth. So I wouldn’t be shocked if we were to see some per-mile taxing in the future. If things get really desperate, if you really need to raise money for roads, we could try what they do in other parts of the world, which is this, Kai: traffic fines that are indexed to how much money you actually earn. So, in Finland for instance, if you get a speeding ticket, you’re fined about 20 percent of one month’s take-home pay. So, you know, the speeding fisherman is going to pay a lot less for his ticket than the speeding high tech boss or radio talk show host, for that matter.

 

RYSSDAL: Yeah, ba dum boom. One cautions though, that this is America my friend.  Not Finland.

 

DUBNER: That’s true -- not yet, Kai.  Check in with me in a couple of weeks.  We’ll see if we’re all looking a bit more Finnish around the ears.

 

RYSSDAL: Steven Dubner, Freakonomics.com is the website. We’ll see you in a couple of weeks.

 

DUBNER: Thanks for having me, Kai. 

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COMMENTS: 61

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  1. Doctor Gonzo says:

    Or…..we can increase the gas tax.

    Until security and privacy concerns are thoroughly and adequately addressed, I have zero desire to have the government track where I go to calculate how many miles I drive. The potential for abuse is staggering.

    Well-loved. Like or Dislike: Thumb up 43 Thumb down 2
    • momosgarage says:

      Instead they should just tie the sur-tax to mileage tracked during smog checks for registration. The infrastructure for such a plan already exists. But it make too much sense and is too simple, so instead they will come up with some dumb technological solution that needs to be installed in the car instead

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      • Mike B says:

        The problem is that there is no way to get drivers from out of state to pay their fair share when under the gas tax system a sizable % will have to fill up in state. A better method would be either a higher gas tax or a millage tax. The gas station attendant would look to see if you had a road tax paid sticker on your vehicle and then give you a lower, non-tax, price. Making the millage tax mandatory for in-state registered cars would mean the at pump tax would never be paid by in-state voters.

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      • Travis Idol says:

        Exactly. The “Big Brother” argument is easily surmounted by simply adding a surcharge to the annual registration fee. Yes, it’s not as precise, but my guess is that the over- and under-payments for people who cross state lines would balance out for most states, maintaining overall accuracy and therefore fairness. Additional requirements can always be put in place for professional long-distance drivers (e.g. truckers). You can even make the surcharge adjustable, based on vehicle size. This would work for both federal and state road maintenance.
        Another potential advantage of divorcing the gas tax from road maintenance is that you could readjust it gas to account primarily for pollution impacts, including greenhouse gas emissions. This would be an example of a “carbon tax”, something economists tend to like and some conservatives are calling for more generally.

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    • Linch says:

      Agreed. Further, from the perspective of a non-commuter and part-enviromentalist, it seems like a bad idea to decrease incentives for fuel efficiency.

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  2. EJS says:

    Hidden due to low comment rating. Click here to see.

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    • Tom Meixner says:

      DUbner and Leavitt not exactly known to be pro-government . Roads must be paid for if we want them to stay in good condition.

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  3. James says:

    I’d really like to see some supporting evidence for your claim that raising gas taxes is significantly harder than raising any other kind of tax.

    Also, why not discuss the problems inherent in a per-mile tax? First, that road wear goes up as the 4th power of axle weight, and road occupancy depends on the size of the vehicle, so taxing per mile would put a disproportionate burden on people driving small cars (or motorcycles). Second, that it would be ridiculously easy to game any distance-measuring system, in ways ranging from simply disconnecting the odometer to spoofing GPS signals.

    PS: No, we haven’t all gotten used to carrying around a GPS. And if it would save money, I bet a lot of folks would start figuring out how to disable smart phone GPS systems, too.

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    • Roger Mingo says:

      You are right on, James, on several key points. First, a 2011 survey by the Rahall Institute showed that a substantial majority favored a gas tax increase as long as the added funds were used exclusively for transportation. Find another tax that has that degree of support.

      Second, there are indeed axle-weight issues, vehicle-width issues, and highway capacity issues that track better, to some degree at least, with fuel consumption than they do with miles of travel. The most compelling reason to favor a fuel tax over a VMT tax, however, follows from the extensive externalities associate with fossil-fuel-powered transportation vehicles. Never mind the money we spend on protecting petroleum sources, or ignoring environmental and safety effects. Can anyone say climate change?

      In the short term (20 to 30 years), fuel tax is an ideal source of revenue for transportation funding for all modes. We have not begun to tap its potential. When the ratio of electric-to-petroleum vehicles approaches 3-to-1 or 4-to-1 , we may have to revisit this philosophy, For now, though, when the ratio is 0.0001-to-1, or something like that, replacing the fuel tax is the height of folly.

      Well-loved. Like or Dislike: Thumb up 16 Thumb down 1
      • James says:

        “…a substantial majority favored a gas tax increase as long as the added funds were used exclusively for transportation.”

        Interesting! Which makes me wonder* whether the difficulty lies not with the voters, but with the petroleum industry and campaign contributions.

        (*I’m not paranoid. They really are out to get me!)

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      • Mike B says:

        Many or even most voters simply don’t believe that gas taxes will be used to improve or maintain highways. That is why they tend to oppose gas tax increases. This is because many states have and continue to raid or “borrow” from the transportation trust fund when there is a general fund budget gap. Moreover many states and the Federal government currently use general funds to improve highways so as long as there is that overhang, even with strong protections for gas tax money, initial increases could be used to replace general fund funding and not increase overall highway funding.

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    • JBP says:

      That’s what I was going to say.

      I would also add that this point undermines the entire premise of the podcast. A heavier weight on the axle does disproportionally more damage to the roads. And weight is one of the biggest factors in mileage. Yes, engine size is a big factor, but guess what?, larger engines weigh more. So more fuel efficient cars should do less damage to roads. Therefore, the tax should scale.

      It’s my understanding that the real problem is that the cost of materials has skyrocketed. A couple of years ago, there was a shortage of asphalt. The gas tax needs to be made a percentage rather than a fixed amount.

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      • mike says:

        There is no need to scale the tax for lighter vehicles.

        As you say, lighter vehicles do less damage to the roads. They also get better mileage. Under the current system, they pay less per mile driven compared to a heavy vehicle. So if you care about damage (wear and tear) to roads rather then miles driven the current system works.

        I would point out though that everyone in the country gets benefits from the highway and roadway system even if they don’t own a car and never go anywhere. Everyone buys products which are delivered via a road. Therefore everyone should pay at least some nominal amount.

        And they do, through the taxes on business vehicles gas that use the roads which are passed along and factored into the prices that we pay on goods and services.

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      • JBP says:

        Mike,

        That’s what I was trying to say. The tax scales itself, so we don’t need to go to a mileage tax.

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  4. Kevin says:

    Couldn’t you avoid the big-brother component by just checking the odometer when you register your car and then pay a tax based on the odometer increase since the last year?

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    • momosgarage says:

      This makes the most sense, just tie the sur-tax to mileage tracked during smog checks for registration. The infrastructure for such a plan already exists But it make too much sense and is too simple, so instead they will come up with some dumb technological solution that needs to be installed in the car instead.

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  5. Eric says:

    Dubner: You have not accounted for the increase in the number of cars on the road. Even if the fuel efficiency of cars increases, could we not continue to consume increasing amounts of fuel (and thus increase fuel tax revenue) simply by continuing to expand the number of cars on the road?

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    • Nick says:

      But you have to realize that more cars on the road = more wear & tear on the roads. Yes, more cars means more revenue, but it also means higher repair costs for those roads.

      Raising the gas tax would also hurt people that can’t afford newer, more fuel efficient vehicles.

      What our government needs is to pull it’s head out of it’s ass & stop pissing away money. While the politicians are on vacation they should allow the middle class to come up with a balanced budget, since many in the middle class know what it’s actually like to live within a budget.

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      • Enter your name... says:

        How much the increased number of cars matters for “wear and tear” depends on where you are. In Los Angeles, it’s probably huge. In Minnesota, they have this thing called “winter” that probably does more damage than anything else.

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      • Eric Herot says:

        Considering that the federal and most state gas taxes are (stupidly) flat taxes, what you’re asking is for government to maintain and build infrastructure with a steadily shrinking budget. It’s a bit like a household where the primary breadwinner never receives cost of living raises. In such a situation, simply cutting back every year to balance one’s budget eventually leads to poverty. Most people would probably say the breadwinner is better off trying to find a better job.

        My state government in Massachusetts has been cutting back on transportation spending for years trying to live within the means of our flat gas tax (and a sales tax hampered by online purchases). As a consequence of this “thriftiness,” 75 percent of our rail fleet is past its service life, there is a multimillion dollar maintenance backlog (including several million dollars of “urgent safety maintenance”), and trains and busses are frequently late or canceled as a result of equipment failures. And even when the system does work, it feels dirty, impoverished, and extremely antiquated.

        Given that most economists seem to agree that there is at least a 2-to-1 return on almost any kind of infrastructure investment, it’s hard to see what we’ve really gained as a state or a country by cutting back so heavily on this kind of spending. Sure, my gas is really cheap (or at least, the tax portion of it), but my bus fare keeps going up and the system frequently makes people late to work. Can we really say it’s worth it?

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      • James says:

        “Raising the gas tax would also hurt people that can’t afford newer, more fuel efficient vehicles.”

        But there are a large number of older, more fuel efficent vehicles out there. Few new cars can approach the fuel economy of the late ’80s Honda CRX and Civic, or the Geo Metro. It’s also possible to find older Prius and Civic/Insight hybrids on the used market for much less than new prices.

        FTM, about the only thing on the market today that can beat my 2000 model Insight’s fuel economy are the Volt and Tesla.

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      • Mike B says:

        The real cause of wear and tear on highways are heavy goods vehicles. A single tractor trailer causes 100 times as much highway damage as a passenger vehicle.

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  6. Mike says:

    Texas has long priced vehicle licensing fees on the basis of weight. That addresses several of the issues raised.

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  7. Patrick says:

    I invite Mr. Dubner and readers of this blog to follow the developments in Oregon where a mileage-based tax is being tested using non-location-based (i.e., non-GPS) technology. This is a critical point of which every journalist in the country should take note: mileage-based taxes DO NOT require GPS or a “government tracking device” of any kind. There are many methods of reporting mileage (yes, GPS is one of them), but there are non-GPS technologies as well as “manual” systems (e.g., annual odometers checks). The concept of mileage taxation is fair, understandable, and sensible. We finally now are seeing implementation approaches that address privacy concerns and are inexpensive to administer.

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    • James says:

      So I have to keep asking, what on Earth is going to keep people from disconnecting their odometer for part of the year?

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  8. Sharyn W. says:

    My solution to funding the federal/state government for upkeep of roads etc:

    Yearly car ownership tax based on number of cars and the WEIGHT of the car. Heavy cars break down roads faster. Lighter cars do not. Regards, Sharyn W.

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    • HemiMan says:

      The number of vehicles you own is irrelevant. It’s the weight and miles driven by any given vehicle that matters. One can keep his little Porsche in the garage most of the time and only drive it 2,000 miles per year, and one can drive a massive SUV daily for 18,000 miles per year. The tax revenue should be attuned to this.

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      • Enter your name... says:

        On the other hand, you can only drive one car at a time, so the number of cars per driver in the household might matter. This would automatically be captured in a miles-driven system, but it’s not completely irrelevant.

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