Do Low Gas Prices Signal Big Bucks on the Horizon for GPS Manufacturers? 12 comments
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Big spending. That’s been the Obama administration’s prescription for the financial crisis thus far. However, with a projected 2009 federal budget deficit of well over a trillion dollars, the administration’s stated desire to reduce the impact of income taxes for the majority of Americans, a decline in capital gains tax revenues, and other tax revenue sources, there will be mounting pressure on both federal and state governments to raise tax revenues in new, creative ways.
Take for example the discussion of implementing a Vehicle Miles Traveled (VMT) tax that would tax motorists on how many miles they travel as a replacement, or possibly addition, to the current federal (and state) gas tax system. To make the VMT physically practical each and every car sold in the United States would have to be equipped with a GPS receiver and thus manufacturers of these systems such as Garmin (GRMN) would potentially have much to gain from the adoption of such a tax.
The recent collapse in commodity prices has also helped to renew interest in the VMT, as the collapse has meant that both federal and state gas tax revenues have accordingly declined during a period when government spending at both the federal and state level is under tremendous pressure to increase.
Recently the VMT tax made an appearance on the national stage when Obama’s transportation secretary, Ray LaHood was quoted as saying in an AP interview that "We should look at the vehicular miles program where people are actually clocked on the number of miles that they traveled." Although the White House press secretary later denied the VMT would be a policy pursued by the Obama administration, facts would suggest a growing state and national trend in viewing the VMT as a long-term revenue solution.
In 2007 the state of Oregon released a report on the state’s VMT tax pilot program entitled “Oregon’s Mileage Fee Concept and Road User Fee Pilot Program” detailing a practical study of a VMT tax regime that could possibly serve as a model for national implementation. As the report details, one of the key claims for the necessity of implementing a VMT tax is that gas tax revenues have flattened out and will decline as consumers switch to more fuel efficient, hybrid, and bio-fuel/alternative-powered cars. The rational is that we must find a new source of revenue for maintaining the country’s transportation infrastructure. The idea of taxing drivers for the number of miles they drive, that is, directly taxing their consumption of a publicly provided good (i.e. roads) seems fundamentally fair in that it shifts the tax burden to those who actually do the most driving.
The Interim Report of the National Surface Transportation Infrastructure Finance Commission (February 2008) describes the situation as follows:
The growing funding gap and deteriorating system performance raise questions about how to provide more funding for surface transportation as well as the ways in which users currently pay for the system. Individual drivers today do not pay the full costs they impose on the system. The average current user fee revenue per VMT is about 3 cents. Yet studies of highway congestion show that the costs of using a highway during congested conditions are on average 10 to 29 cents per VMT. Transit riders around the country are paying user fees that cover from 20 percent to 70 percent of the cost of their rides. Moreover, the fuel taxes and other fees imposed on heavy trucks fail to cover the costs that those trucks impose in the form of wear and tear on the roadway. In addition, a declining percentage of total surface transportation expenditures (local, state and federal) come from the fuel tax or other user fees and much of the growth in expenditures has come from indirect sources like property and sales taxes.
Absent much higher tax levels and/or major infusions from supplemental sources, the current funding approach is simply inadequate over the long term. Additionally, the weak link between driving and fees paid—primarily fuel and vehicle taxes—does not do as much as other approaches to promote efficient use of the system. There are other mechanisms for generating funds, either more or less strongly linked to actual use of the system. Current examples—both in the United States and in Europe—of more directly linked mechanisms include tolling, congestion pricing, and fees for vehicle miles traveled [emphasis added].
However, the VMT is not without it flaws. The tax has aspects that make it simultaneously perverse, regressive, and intrusive.
Perverse: The current gas tax system gives drivers the incentive to drive more efficiently by taxing consumption of gasoline directly and taxing VMT indirectly. The further you drive a vehicle, the more gas you use. The more gas consumed, the more tax paid. Although big trucks, fuel-inefficient cars, and city drivers use more gasoline per VMT as compared to small cars, hybrids and highway drivers, everyone’s gas consumption is proportional to their VMT. And this is where the gas tax is meaningful: any given driver has an incentive not just to reduce their VMT, but also to make their VMT more efficient. That is, they have an incentive to drive smaller, more fuel-efficient cars thereby reducing gasoline consumed and thus gas tax paid. A tax directly based on VMT alone would tax a driver of a small fuel-efficient hybrid the same as a gas-guzzling road-wear-generating SUV and thus create a perverse incentive against reducing fossil fuel consumption.
Regressive: Although the current gas tax is arguably a regressive tax in that it is effectively a sales tax whose rate is independent of income level or wealth, a VMT tax would be even worse. A paper published in 2004 by Young-Jun Kweon and Kara M. Kockelman at the University of Austin Texas entitled “Nonparametric Regression Estimation of Household VMT” found that “at low levels of household income, income increases are associated with lower VMT.” In other words low-income households (below approximately $10,000) drive more than higher income households (up to about $20,000). Furthermore high-income households (over about $90,000) drive less as income increases. The current gas tax system allows lower-income divers to reduce their tax burden by driving smaller and more fuel-efficient cars. The VMT would eliminate this possibility.
Intrusive: An obvious problem with the VMT tax lies in it implementation. The current gas tax is functionally a sales tax, and it is relatively easy to enforce and collect revenues. (Gas stations already pay state sales tax. Selling gas requires proper safety and environmental certification, making the incremental administrative burden of tracking and collecting federal, state and local gas taxes from service stations relatively small.)
However, tracking individual drivers’ VMT would require the installation and use of a clock and GPS receiver that would keep track of miles traveled, location (road or highway), time of day, etc. This information would somehow have to be collected and the proper tax calculated, charged and paid. Beyond the obvious Orwellian intrusion into the few tattered patches of privacy we still have left, it would turn what is currently a fairly invisible pay-as-you-go system into something closer in implementation to the current income tax. If one did not periodically “square up the account” one would be subject to interest, fines, penalties and criminal sanctions. Furthermore one would be civilly and criminally responsible (on pain of being charged with tax-evasion, fraud or the like) for ensuring that the system (i.e. GPS receiver) is functioning properly. It would not be hard to imagine felony charges for those who decided that they could somehow “hack” or disable the system. The current gas-tax system has none of these problems.
Ultimately the potential for adopting such a tax lies in the continued progress of state pilot programs and the guile of lobbyists in the GPS industry to convince congress that a national VMT tax regime is needed. If they succeed, expect a bonanza for the GPS industry.
Positions: Gold, Japanese Yen.
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This article has 12 comments:
Error: GPS is not needed to do a fairly effective VMT. Since all states have annual vehicle inspections, the mileage recorded at those inspections could be used to calculate the VMT. This could then be collected either at the inspection station or as an addition to license tag renewals.
This eliminates the "Intrusive" section entirely.
The advantage is that systems to implement all this are already in place and require only software changes to implement.
Another scheme would be needed for foreign vehicles.
Before finishing your article, I had already began to think about the regressive vs. progressive and varying implied cost to the infrastructure issues. I was glad to see that you also had done so. My suggested solutions follow.
First, to cover the issues of varying fuel consumption and wear and tear aspects, EPA mileage estimates (which could include some way to allow for variations, such as fuel efficiency enhancements installed on the vehicle) and gross vehicle weight could be included as coefficients in the formula producing the tax. Other refinements might or might not be appropriate, but the rough idea should adequately address the issues of wear and tear and incentives for lighter and more fuel efficient vehicles.
The results of this could be posted on the vehicle new vehicle stickers just like the EPA estimates. This would promote the increased sales of more fuel efficient vehicles at the dealers.
As to the progressive/regressive issues: the adjusted gross income and reported mileage (from the inspections) could be used at tax filing time to provide an adjustment to gross income or a tax credit. Gross income and miles together should account for the lower-income/higher-mi... driven problem.
Further, since lower-income folks often have to buy used less efficient vehicles (an unfortunate conundrum - those who need efficiency the most can least afford it) another credit could be provided whenever a replacement vehicle (the prior vehicle must be sold and carry a lower EPA rating - maybe even a weight differential could be included) is purchased that has improved EPA numbers. Again, a simple addition to the existing infrastructure of tax collection.
These steps would lower the TCO (Total Cost of Ownership) to the purchaser, providing some relief to these lower-income folks, provide a small improvement in living standards by freeing capital for other things, support national goals by encouraging purchase of more fuel-efficient vehicles and effectively address the regressive nature of the VMT.
This leaves only the breaking of the directness of the current fuel tax linkage to miles driven from the "Perverse" section to address. In our "NOW" society, we may need to balance this somehow. But if the other steps are effective, maybe not.
HardToLove
HardToLove
Unintended consequence if the above is adopted is a near-term spike in new car sales. The well-off are just as adverse to paying additional taxes as less affluent. So, Ford, GM, et al may have increrased chance of recovery in the near-term, giving them time to fully adapt to the new environment.
HardToLove
Much better would be lower tax rates, less government and more money in individual pockets. Then we could all afford GPS units on a whim. And they'd be designed to please us, not rob us.
Strangely, even the poorest would benefit as there'd be plenty of used GPS's available at yard sales.
Heavy truck tires would be taxed more based on weight than little hybrid tires that float over the road.
Much simpler and seemingly fairer.
Don't make taxation systems more complex!
GPS will be in everything anyway. Especially cars. If your car knows where all the other cars are, it can intelligently improve your driving efficiency by routing and speed suggestions.. (it doesn't have to know who you are. Just where you are relative to where you were.)
Imagine if you car could tell you that you are accelerating towards stopped traffic ahead and that if you reduce speed to 40mph you will not have to brake!
1. Each community should set both % mileage reduction and traffic conjestion goals and use various means for achieving them, since each community's need and situation are different. Reduction of conjection is important since 1 fast highway mile is not the same as 1 slow conjested mile. Award or penalty can be added to gas tax.
2. Individual's efforts should be awarded. An award equation can be setup for low mileage that include factors based on need, such as distance from work, distance from school, and distance from malls. Another special factor should also award those who make the choice to live closeby.
We probably want simple methods (e.g. company or inspection or repair shop verified mileage on car) to achieve these goals, instead of expensive or complicate means that may create other kinds of wastes or in-efficiency. An 10% improvement in efficiency in the economy means a 10% return, versus a 10% increase of in-efficiency with adverse effects.
Small reductions in oil consumption will accumulate into a large reduction of wasted resources, with big significance.
All states do NOT have a vehicle inspection program.
* Alaska
* Arizona
* California
* Colorado
* Connecticut
* Georgia
* Illinois
* Indiana
* New Mexico
* Nevada
* Ohio
* Oregon
* Washington
* Wisconsin
On Mar 08 10:17 AM HardToLove wrote:
> Since all states have annual vehicle inspections, the > mileage recorded at those
> inspections could be used to calculate the VMT.
These same test devices can be sold to anyone that wants their gps receiver to "be" somewhere it is not, or to not "move" at all. Taxation based on gps receiver location or speed or time of travel is as unworkable as launching garbage into the sun - possible but not practicable.
The title of this piece is misleading.