Some Thoughts on a Driving Tax

Since this blog was inspired as much by distance as anything else, it seems appropriate to begin with a look at the recent proposals to institute a driving tax.

There's been a fair amount of discussion lately about supplementing or replacing the current federal gas tax with a mileage tax that could, in theory, provide a more stable source of revenue for highway maintenance. The idea has already come under fire by some civil libertarians, who have raised concerns about the federal government potentially tracking private vehicles. I'd like to put these objections aside for the time being to make a basic point about the notion of replacing a gas tax with a mileage tax.

In my view, these taxes are fairly distinct. While revenue generated through either a gasoline tax or a mileage tax could be used to maintain the federal highway system, the two policies really have different aims.

The primary goal of a gas tax is to change people's behavior. By raising the price of gasoline, we're maing sure that individuals who pollute are responsible for the social cost of their decisions. These kinds of taxes are called Pigovian taxes, and they're designed to correct market failures. Revenues generated through Pigovian taxes are almost always less stable than those from other sources because we're trying to get people to respond negatively to the tax and purchase less of the item. This means less money for the government.

A mileage tax is not a Pigovian tax, but a user fee. This kind of tax is designed to ensure that people who drive on interstate highways are responsible for the cost of highway upkeep. However, it's important to note that taxing mileage doesn't directly encourage people to reduce their gasoline consumption. Someone who drives a hybrid would be taxed at the same rate as a someone who drives a similar vehicle with far less fuel economy. While a mileage tax would likely encourage people to drive less, it wouldn't necessarily encourage them to substitute away from inefficient vehicles. 

These may be fairly obvious points, but it seems like people are beginning to see these two taxes as interchangeable. They're really not. If we're trying to stabilize revenues for federal highway maintenance, the mileage tax makes an awful lot of sense. But that doesn't mean that we should stop trying to internalize the cost of pollution due to private gasoline consumption.

-Jeremy