James Whitty of the Oregon Department of Transportation has written a clear, concise explanation of why we need a mileage tax to replace the gas tax. Basically, revenue from the gas tax is collapsing as mileage improves. But gas taxes fund road maintenance, and there is still wear-and-tear on roads from vehicles that use little or even no gasoline. A far better proxy for how heavily one uses the roads would be mileage, or perhaps mileage multiplied by the weight of the vehicle.
Whitty’s is the best discussion of the idea I’ve seen so far, as it offers a number of creative approaches to implementation (including a few ideas that, ahem, I’ve also favored):
Here is how a mileage tax system would work.
The system should offer motorists choices for reporting mileage driven and paying the tax. Some people may choose to report total mileage wirelessly from the vehicle’s odometer system. Others may use their own global-positioning systems, such as car-mounted navigation units or smart phones, to report mileage. (Yes, there will be an app for this.)
Some motorists may elect to bypass mileage metering altogether. They could pay a flat amount for unlimited annual driving or a variable amount based on an estimate of miles traveled. Those desiring simplicity could choose electronic reporting with automatic debits from a bank account.
The tax paid would depend on the per mile rate set by Congress for the federal portion and by state legislatures for the state portion. The combined federal and state tax rate would total about two or three cents per mile, depending on the state.
The government should apply a light touch to the collection system. Rather than relying on any particular technology, a more open approach would let the marketplace supply necessary data- collection equipment and services, certified for consistency.
Actual tax collection could be contracted to private companies, acting on behalf of the revenue agency. That way, market competition could drive down administrative costs. The government would oversee and certify providers to ensure fairness.
Paying the mileage tax could be as simple as paying a utility bill. Whether it will be as automatic as the gasoline tax embedded in a fuel purchase depends on which method motorists choose. In all cases, motorists will be better aware of the taxes they pay.
Whitty’s approach to a mileage tax might work well for other taxes as well. Consider this part, which I once foolishly believed was my brilliant idea:
Some motorists may elect to bypass mileage metering altogether. They could pay a flat amount for unlimited annual driving or a variable amount based on an estimate of miles traveled.
This reminds me of one of my all-time favorite essays, “Government as Contractual Claimant: Tax Policy and the State” by Jonathan Macey of Yale Law School, which includes the following passage:
[N]ot all entities that make claims on the cash flows of businesses and governments are benign. Extortion rings and organized crime syndicates destroy more wealth than they create. Legitimate government crosses the line into illegitimate wealth appropriation when it ceases to be governed by constitutional rules of law.
However, at least in theory, the government does expend resources to supply goods and services such as contract enforcement, police protection, road construction and maintenance, the negotiation of trade agreements and mail delivery, to mention only a few. Government invests in individuals by providing subsidized education, promoting research and making similar investments that facilitate the development of human capital. I consider these expenditures by government to be analogous to the investments made by non-government investors, particularly since the quality of the government’s provision of these services will have a direct effect on the government’s revenues. In this way the government displays many characteristics of an equity claimant (shareholder) and many characteristics of a fixed claimant (lender), but it has certain “rights” (legal privileges assumed as a matter of power) not shared with other claimants on a firm’s cash flows.
This simple observation leads to a couple of useful normative insights about the ability of private citizens to successfully control the growth of the state during times of ordinary politics. For example, applying insights from constitutional economics to my “government as investor” framework leads to useful policy proposals about how the power of government can be restrained by constitutional rules regarding tax policy.
In the final section of the article, Macey introduces new and interesting possibilities for how we might change the terms of government’s claims on the cash flow of individuals and firms in whom it invests:
The conceptual reassessment I am advocating here would hopefully be transformative from a policy perspective in two divergent ways. First, it would better legitimize the state’s revenue collection function by providing a morally comprehensible basis for the government’s claims on the earnings of firms and people. Second, it would provide citizens with a much stronger possibility of achieving the illusive goal of stability in tax policy. To better ensure stability, citizens and businesses should be given the right to perfect buy-out rights against the state’s claims on their future cash flows. By this I mean that people should be able to choose whether they prefer to continue to meet their traditional periodic tax obligation to government or whether they prefer to make a one-time lump sum payment equal to the estimated present value of those future tax obligations. Such a buy-out system, which flows logically from the concept of “government as investor” suggested here, would permit individuals to “bet against” the government’s statistical guess about their longevity and future earnings capacity. It also would enable people to obtain a binding commitment from government against any future tax obligations. Of course, people would be able to borrow from private sources such as banks to obtain the payoff sums necessary to discharge all or part of their expected tax obligation. This buy-out possibility should be viewed as a right, not a privilege. [Emphasis added]
How awesome would perfect buy-out rights be?
Whitty’s suggestion that the government allow drivers to choose to buy unlimited driving rights or pay a mileage tax allows drivers to make a bet about how much they’re actually going to drive. If I think I’m going to drive a lot, or if I really hate the idea of the government keeping track of my mileage, I’ll pay the presumably large lump sum. Perhaps I’d have to drive a tremendous amount to justify the expense. I make a similar calculation every month when I purchase a MetroCard. Should I buy an Unlimited Ride card, and bet that I’ll use the subway at least X times a day on average? Or should I buy a fixed amount, on the assumption that since I’ll be in California for a spell, I will use the subway (X-n) times on average.
Perfect buy-out rights would, in a similar vein, present an opportunity and a choice. Imagine a young person who comes from a disadvantaged background and has a low level of educational attainment. The government assumes that she will die young and earn very little over the life course. She might think otherwise, and find a way to secure buy-out rights, perhaps with the help of a loan. Or a wealthy person of a libertarian bent might decide that she finds the uncertainty of the government’s evolving tax policy is so distasteful that she’d rather secure a buy-out now, betting that otherwise the government’s tax policy will only grow more byzantine and crazy.