Congress Wants to Tax You by the Mile
Have you ever stood in front of the shelves of toilet paper at your local market and tried to figure out the best deal? Jumbo rolls, super jumbo rolls, mega rolls, 8-packs, 12-packs, one-ply, two-ply. It's maddening. I'm an economist, and I can't figure it out, so I choose not to waste the brain cells on it. I just pay whatever and go my way. It's called "rational ignorance" — I choose not to spend the effort to figure it out. We'll come back to this.
Jumping to the recent $1-trillion infrastructure bill, one can find buried deep inside it — page 508, to be exact — a proposal to test a new tax for driving. It's a mileage tax — essentially, a user fee for roads. Drive X miles, pay Y cents per mile to the government. Unlike most tax proposals, surprisingly, there may be some logic to this idea. Not much logic and we should all be leery, but let's break it down and see what's really going on.
First, drivers of vehicles that run on gasoline or diesel already pay a per-mile tax. It's not calculated that way, and nobody figures it out that way — remember rational ignorance — but, effectively, the federal (and state) taxes on petroleum fuels are a mileage tax. Currently, the federal government gets 18.3 cents in excise taxes on every gallon of gasoline sold. It's stated as a "per gallon" tax, but one could think of it as a mileage tax.
Here's another way to consider the federal 18-cent-per gallon tax. If your car gets 18 miles per gallon on average, that means you are paying a tax of a penny per mile. More per mile if your vehicle is less efficient, and obviously less per mile if you get 25 or 30 mpg. But, because of rational ignorance, nobody figures it out this way. Nobody looks at his 18 mpg car and thinks, "I have to pay the government 25 or 30 cents to visit my grandmother across town."
So why the big switch to openly calculating highway taxes by the mile rather than disguising it by the gallon? You gotta see this one coming. Electric vehicles! That's right: E.V.s don't use gas, so they don't pay any highway taxes. And, with the liberal push to make everyone abandon fossil fuel-powered transportation, the money for roads has to come from somewhere.
Okay, that seems to make sense, but as they say on TV game shows, there's more!
Economics is all about incentives. You work because you get paid. You'll work harder or longer for more money and not so much for less money. You'll buy more rolls of toilet paper if they're on sale than if they're not. So if the folks on the left want to do away with fossil fuel-powered vehicles, why are they dis-incentivizing electric vehicle transportation by taxing it? I get the "we gotta build and maintain roads" argument, but we don't tax bicyclists who use public highways or pedestrians who take long romantic walks on the interstate.
Maybe the Democrats are smarter than they vote. There's a strange effect that occurs when goods are taxed, and it has to do with how the tax is expressed, or applied to the consumer. It's called "tax salience," and it works like this. Economic theory tells us that if we raise the price of something, people will purchase less of it. And if we raise the price by including the tax inside the price (like current gas taxes), people see the total price and react as theory predicts. But if we add the tax later, like sales taxes at the cash register — or the proposed per mile tax after buying gas — consumers don't reduce consumption as much. Because of salience, a per-mile tax after the fact won't dis-incentivize E.V.-drivers.
Also, there might be something else at work here. How will your mileage be calculated, and how will the taxes be collected? I smell a whole lot of folks being hired for a new bureaucracy and a golden opportunity for a massive invasion of privacy! Let's think about ways that could track how far a person drives.
Will drivers "self-report" their mileage and file a tax return every year? Well, then we need an army of auditors to keep the peasants honest. Will every vehicle have a tracking device to report where folks drive and how far? Just wait until those data are leaked and we find out that our senator drove to a strip club and then a seedy by-the-hour motel. Okay, what about a cell phone app? Oh, that means you have to have a government-approved xyz phone or newer, and only on one of these approved carriers or networks.
And then there's this. Do you really think the 18-cent-per-gallon federal excise tax will go away when a mileage tax is put in place? And do you really think that states — which also currently tax gasoline and diesel by the gallon — won't piggyback on the federal system and start taxing by the mile also? Wanna bet that states like California won't jump on the per-mile tax idea without reducing its already onerous taxes per gallon that amount to over a buck? If you do, then let's also bet on the Easter Bunny singing a Madonna song on a podcast.
Many thought they could escape fuel taxes by going E.V. They were wrong. Now maybe the only way to escape transportation taxes is to escape the planet. But wait! Oregon congressman Earl Blumenauer has proposed legislation — the SPACE Tax Act — to tax space travel. I wish it were a joke, but Benjamin Franklin said it best: "Nothing is certain except death and taxes."
Kevin Cochrane is an economist that teaches at Colorado Mesa University. He previously taught at the University of California and was a senior national banking executive.
To comment, you can find the MeWe post for this article here.