America needs billions to fix its crumbling, crappy roads. But no one’s got that kind of money and the Highway Trust Fund—Uncle Sam’s primary means for paying for road construction and repairs—teeters on insolvency. That’s because it’s funded largely by a federal fuel tax that’s been parked at 18.3 cents per gallon since 1993, even as cars use less gas than ever. Things are so tight that Congress made an emergency transfer of $18 billion to keep the fund afloat.
Oh, and the current funding bill expires May 31.
Meanwhile, electric vehicles are slowly gaining in popularity, in no small part because the federal government and many states offer tax breaks and other incentives. This is good—anything that weans us from gas has long-term benefits—but comes with a downside: a Tesla Model S, for example, exacts as much wear and tear on our roads as a BMW 5-Series, but the guy driving it isn’t kicking in any gas taxes to help with upkeep.
A lot of people use that to knock EVs, but it’s not that big a deal. Americans bought just 123,000 electric and plug-in hybrid vehicles last year, nothing compared to the 16.5 million new vehicles sold nationwide. And the amount these drivers would otherwise pay into the Highway Trust Fund is minuscule—reaching perhaps $200 million a year by 2024, even assuming aggressive EV adoption—according to a recent study from Carnegie Mellon’s Center for Climate and Energy Decision Making.
So EVs on are roads aren’t the problem, but they point to the essence of our current quagmire: At a time when we are working harder than ever to consume less gasoline, using a gas tax to finance the roads and bridges that literally keep us moving simply does not make sense. If we don’t dramatically increase the gas tax (an idea you may be surprised to hear has very little support) or, better yet, finding another way of paying the bills, this money problem is staying put.
We Need A New Model
The Carnegie Mellon study considers two ways to recoup the funds EV drivers aren’t paying in gas taxes: a usage tax of two cents per mile, and an annual registration fee of 0.6 percent of the car’s MSRP. Neither is likely to happen. The government is encouraging people to buy EVs through a $7,500 federal tax credit. It probably would be loathe to do anything to undermine that campaign. “The goal [of the government] right now is to increase adoption of EVs,” says Professor Inês Azevedo, an associate professor of engineering and public policy at CMU, and an author of the study.
In any case, either idea would merely plug one of many holes in a sinking ship while ignoring the massive breach in the hull. Federal fuel economy standards are making passenger vehicles more efficient every year. All manner of methods, from turbochargers to lightweight materials to improved aerodynamics, are cranking up MPG. The average fuel economy of new passenger cars stood at 27.6 mpg; light duty trucks hit 19.8. Those are record figures. We’re saving gas, but killing the Highway Trust Fund.
This problem must be fixed, and soon. Current funding runs out at the end of May. This week, the White House announced its Big Idea: augmenting the fund with a 14 percent repatriation tax on cash US corporations have stashed offshore. It’s part of a $478 billion, six-year transportation funding bill the Obama Administration sent to Congress. Given that Obama is a lame duck president facing a Republican Congress, don’t expect it to go anywhere.
Competing bills are shaping up in the House and Senate, but, according to The Washington Post, “neither seems likely to significantly boost federal spending beyond the current level of about $50 billion a year.”
Politicians, being politicians, aren’t likely to get their acts together and agree on anything approaching a long-term solution in the next seven weeks. It may be time to look at what states, short on federal money, are doing. Oregon has a pilot program that taxes miles driven instead of gallons consumed; volunteers use a gadget plugged into their car’s OBDII port to report mileage. However, adopting such a program nationally would be tricky to say the least, and raises privacy concerns. Last year, Virginia replaced its per-gallon tax charged at the pump with a 3.5 percent wholesale tax on gasoline—effectively passing that tax from consumers to retailers, who probably passed it back to consumers—and a bump in the general sales tax. The idea is that percentage-based taxes like these will keep revenues growing with inflation. States also could crib an idea from the CMU study and apply a per-mile tax and a annual fee based on a car’s price to all cars.
Unfortunately, the biggest problem with following suit at the federal level isn’t financial. It’s political. Even with a huge drop in gas prices, the idea of raising taxes remains deeply unpopular. And while some of these alternative funding formulas would be offset by a reduction in gas prices, there would still need to be a tax increase to cover urgently needed road maintenance. And gas taxes disproportionately hit poorer Americans, who often need to live further away from and commute longer to get to their jobs.
Come May 31, something or other will have to be done. And it’d be a lot nicer to see a serious solution, instead of yet another midnight romp through the sofa cushions in the House cloak room to scare up enough change to keep the Highway Fund going for another few months.