Do Low Gas Prices Signal Big Bucks on the Horizon for GPS Manufacturers?
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 (NYSE: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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Comments (11)
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* WisconsinOn 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.
