The Downside of More Miles Per Gallon (Ep. 115)

(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 here.)

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)


I'm confused as to why gas consumption isn't considered a very good proxy for miles driven. Not only that but it also takes into account bigger/heavier vehicles (which need more gas per mile) and which cause more wear to the roads. Gas consumption is also a good proxy for pollution and similar externalities. Heck drivers idling in traffic jams consume more fuel than those on the same stretch in free flowing traffic. So why is this simple fair mechanism ruled out?


When I lived in Germany, cars were taxed as a function of horsepower, the rationale being the higher the horsepower, the higher the fuel consumption so the amount of fuel tax actually paid is a function of both consumption and miles driven. In a more tenuous relationship, this also makes the gas tax more proportional to the owner's income, as larger, higher horsepower cars tend to be owned by the more wealthy. So, without letting Big Brother know if I should drive to Shotgun Willie's, taxing by horsepower might be a relatively good approximation of taxing by use.


easiest way is to require annual vehicle inspections (whether for emissions or vehicle safety) pull the mileage and record the weight or use GVW for transport trucks. then multiply weight * mileage * tax rate. if someone 'conveniently' has a broken ODO, they are charged a minimum mileage (say 30k) to reduce tinkering or attempted system gaming. As well, most car's on-board computers store the mileage, which is accessible through the OBD ports.


Any sensible person is going to reconnect that "broken" odometer before the annual check. (And is going to show a reasonable number of miles travelled that year.) As for OBDII, any competent electronics hacker can modify that with ease. See for instance the ScanGauge, UltraGauge, and other products on the market now.

Eric Herot

There's already an incentive in place to cheat on odometer mileage, but most people find the harsh penalties for doing so combined with the complexity of doing it to be not worth their while. Sure, people do it, but it's sufficiently rare so as to not present a threat to the revenue model.