Tentative Steps Away from the Gas Tax and towards a Better System

The state of Oregon recently began a pilot program with 1,000 drivers, which charges those drivers a fee based on the miles they drive, rather than a gas tax. Several states are looking closely at Oregon’s experiment. This could mark the beginning of a major change to a much better way to finance our roads.

The states care about Oregon’s experiment because the gas tax is a lousy user fee that doesn't come close to capturing the true cost a driver imposes on the state when he drives, whether via the wear and tear his vehicle causes to the highway, the congestion his presence on the road exacerbates, or the pollution his car emits. An optimal user fee would attempt to capture each one of those and charge a fee based on where a person drives, how much he drives, the amount of congestion on the roads he is on, and his car's emissions. Oregon's simple experiment captures none of that—it consists solely of a 1.5 cent per mile charge, coupled with a fuel tax credit—but with today's technology a more advanced system could easily be implemented.

The advantage of having a sophisticated user fee for drivers is that it could dramatically lessen congestion on a road: if you charge a high fee when roads get crowded, people will postpone trips, carpool, work at home, or take mass transit. Since the majority of auto pollution comes from cars stalled in traffic, the reduction in smog would be significant. Such a user fee would also help states reduce how much infrastructure they have to build by smoothing out demand.

The complaint against such schemes is that they have the potential to invade privacy—a valid concern, but one that can be addressed with adequate regulation, and an open source software system that can be examined by anyone to determine if it is sufficiently secure.

Illinois's legislature considered such an approach until popular outcry led to rapid backpedaling by leaders in the state legislature, spurred in part by downstate outrage. That the poorer and more rural residents there reflexively objected to Illinois’s mileage-based user fee plan is a pity, because they stand to be the biggest winners from such a change. Switching to a smart per-mile fee for Illinois drivers would push more of the cost of the state's roads onto wealthier drivers in suburban Chicago, while at the same time reducing the amount that would need to be spent on infrastructure for them. People who don't live upstate and thus rarely find themselves in traffic jams would see their fees go down. In short, replacing the gas tax with a smart per-mile fee would represent a very progressive change to the system, whether in Oregon, Illinois, or any other state.

California took a small step in this direction when it changed auto insurance rules to base rates on miles driven. The politicians survived that step. As long as gas prices remain low, it is a propitious time to aggressively expand efforts to charge people something akin to the true public and private cost of their driving.

The federal government could help the cause by making it easier to toll on federal roads, and congressmen could help by not demagoguing such plans when they arise, as is their wont. My former congressman Ray LaHood committed a political gaffe early in his tenure as secretary of transportation, when he inadvertently told the truth and said per-mile charging was the most logical system that existed, and that we should do what we can to move towards implementing it. President Obama quickly renounced the sentiment and promised that such a thing would never happen on his watch.

Obama’s watch is now almost over. It's time we embraced a transportation funding system that would more closely resemble an actual market, and deliver markedly better results for drivers and the environment. It would be asking too much for either presidential candidate to embrace such a reform, but the next commander-in-chief could help nudge states in the right direction simply by directing the Department of Transportation to be more helpful in experiments like Oregon’s. The idea of smart, per-mile charging is so intuitively appealing that I suspect most DOT workers are already inclined in that direction. A White House that's not worried about short-term blowback could allow them to do a lot more than at present to make per-mile fees, instead of gas taxes, a reality.