Taxable Talk

First, why are states even considering a change? Blame fuel efficiency. The gasoline tax is used for road maintenance. Assume that an average car is driven 10,000 miles per year and that the car gets 25 miles per gallon. The driver of that car would need to purchase 400 gallons of gasoline per year. According to the Oregon Department of Transportation (ODOT), the gasoline tax is $0.24/gallon yielding tax revenue of $96/year. Now assume that the car gets 30 miles per gallon (assume the same number of miles are driven); this would yield Oregon $68.57 in tax revenue, a decrease of 29% in tax revenues.

The ODOT undoubtedly thought, we can't have a 29% decrease in tax revenues--how will we repair our roads? So some bureaucrat thought of a mileage tax. Just attach a gps device to every car, and then you'll be able to know the number of miles driven. Have each gasoline station purchase the necessary computer communication device(s) so that when a consumer purchases gasoline, the number of miles driven on Oregon roads is known. Each year you determine the tax rate needed to maintain the roads and, voila!, the roads are maintained and everyone is happy.

I can think of several problems with this idea: privacy concerns, out-of-state drivers, removal of gps devices, malfunctions of gps devices, lessening of a public good (air quality) and infrastructure issues.

The privacy concerns are obvious: do you want big brother (the ODOT) to know where you've driven your car? I'm sure the ODOT will say that only the mileage will be known (to ODOT), but there have been enough scandals with government employees that even I'm skeptical of that. Luckily, California's constitution has a right to privacy, probably making this scheme impossible to implement here (though earlier this year Caltrans was talking about this).

Next, how do you tax out-of-state drivers? Assume that I drive to Portland and fill up my California registered car. Do I pay the old gas tax rate? If that's lower than what an Oregonian would pay, isn't that a violation of the Equal Protection Clause of the Constitution?

Of course, I could remove or break the gps device. ODOT would probably mandate that the device's location be unknown; however, sooner or later consumers would find out (secrets like this rarely last forever). And everything breaks--what do you do if the gps device fails?

Additionally, one role of a gas tax is to cause drivers to change their behavior so that a public good (clean air) will become more likely. Hybrid vehicles cost more, but get better mileage. Environmentalists want consumers to purchase more hybrids but fewer SUVs. This scheme would lessen the desirability of fuel efficient vehicles.

Finally, Oregon would have to spend a lot of money on adding the necessary infrastructure to read the gps devices at every gas station in the state. The costs would have to come from some source of tax revenues that Oregon receives (presumably the gas tax).

Of course, there's a simple solution if Oregon wants to keep gas tax revenues stable: increase the gas tax rate. This is a simple approach which has all the benefits (to the state) but few of the problems. Indeed, the only problem with increasing a tax rate is that it is very visible, and both politicians and bureaucrats don't like that. And bureaucrats especially like complex programs that are their own "full employment" policies.
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