In 1919, Oregon was the first state to levy a tax on gasoline, at 1 cent per gallon. Soon, every state and the federal government followed suit, and we use this system today to fund the bulk of America’s transportation infrastructure. Now, over the last year, Oregon has been the first state in the country to roll-out a program that would end it.
The gas tax system worked extremely well for decades. It was a perfect tax that charged people in proportion to how much they drove. But today that system is at the early stages of a breakdown due to the growing popularity of fuel efficient, electric, and alternative fuel vehicles. A Tesla driver who can certainly afford to pay today’s 31 cents a gallon tax to maintain Oregon’s state roadways isn’t paying a penny, even though he uses the roads as much as a gas-powered driver.
This is why a concept that was once thought too controversial is gaining more currency: Instead of taxing gasoline purchases, tax drivers by how many miles they drive.
More states are now experimenting with road usage fees, which are also sometimes also called a vehicle miles traveled (VMT) tax. After a decade or so of studies and pilot tests, Oregon became the first state last year to implement a program, albeit at a small scale: a 1.5 cent-per-mile a tax to on up to 5,000 people who volunteered to participate (the volunteers get a refund on their gas tax payments). And California, in July, is launching a pilot program that will test the logistics and technology of a program without requiring actual payments. Other states, including Washington, Indiana, and Florida, have been studying it; the 2015 federal highway bill included a $95 million grant program that funds testing of gas-tax alternatives.
Oregon’s program, called Orego, offers insight into how a larger-scale program could work. The program, which requires participants install a device in their car to track how far they've traveled, has only enrolled a bit more than 1,000 people since last summer. But the ones who join are staying with it. Surprisingly, says Michelle Godfrey, with the Oregon Department of Transportation, the majority own high-efficiency vehicles like a Toyota Prius—even though Orego requires they pay more than they otherwise would under a gas tax.
"We’ve learned, particularly with electric vehicle owners, that they don’t think it’s fair that they should get away scot-free on driving the roads," Godfrey says. (Under Oregon’s tax rate, 20 mpg vehicles are at the break-even point where drivers pay about the same per mile as under the gas tax. Cars that have a worse gas efficiency save money under a per-mile tax, and cars that are higher efficiency pay more than they would now.)
If the program were to expand, which would require legislation, not everyone will be so happy about it. In fact, in surveys and focus groups conducted year after year, San Jose State University transportation finance researcher Asha Weinstein Agrawal says most people hate the idea of a mileage tax even once they are educated about why it’s needed, citing a huge range of reasons from privacy and fairness concerns to not wanting to deal with another bill to pay every month.
Among the concerns: Rural and low-income drivers who have longer commutes fear they would pay more, says Agrawal, and it could be hard for the latter group to budget to pay a larger lump sum every month, rather than make small payments automatically at the pump. Depending on the technology used, the government or a private company could collect mileage or location data—a real concern for many citizens, despite privacy policies in place with the pilots (Orego and California program participants get to chose their technology vendor. Some track GPS data, some don’t—the benefit to GPS tracking is that drivers don’t pay for miles driven out-of-state). Environmentalists also worry that shifting to a mileage tax would discourage people from buying fuel efficient cars.
"These things need to be weighted and understood whenever you introduce a new tax program," says Godfrey. She says once people understand it’s a very similar system to having an electricity or water meter in their home—and have experience trying the program, many concerns have been alleviated.
In any case, some new money is needed to fund both road and public transit infrastructure. The federal gas tax—a political third rail to both Republicans and Democrats—hasn’t increased since 1993, and every year the money going into the Federal Highway Trust Fund is billions of dollars short of what is spent.
Agrawal believes that raising the gas tax is the simpler short-term solution, but a mileage tax is the long-term answer, as people become more comfortable with tracking technologies and more electric cars are on the road. "I think it is likely we will go in this direction. Not probably in three or four years, but I would not be surprised if in 10 to 20 years, we see mileage fees in a number of states."