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The replacement for gas taxes

Mileage-based user fees offer multiple benefits to consumers and governments compared to gas taxes, but a big concern is making them replace gas taxes, not become just another new tax.

  • Sarasota
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As the number of electric cars increases in Florida and nationwide, states and the federal government soon will face another financial dilemma: what to do about declining gas-tax revenue.

In Florida, the average total state gas tax rate is 36.7 cents a gallon. That generates about $4 billion a year to pay for Florida’s roads.

But as vehicles get more fuel efficient and more consumers switch to electric cars, we will pay less in fuel taxes for using the same amount of roads. Combining data from the Energy Information Administration and Bloomberg, Florida would need to raise the gas tax to 75.6 cents a gallon by 2050 just to keep revenue even.

But a new revenue scheme is gaining traction: mileage-based user fees, sometimes called a road-user charge. This is the concept of charging road users based on distance traveled rather than the per-gallon gas tax.


Major Advantages

Here are five major advantages to user fees:

  • Fairness. Ensures that those who pay the user fees are the ones who receive the benefits.
  • Choice. Provides users more control of what, when and how often they pay.
  • Flexibility. Allows transportation departments the ability to adjust revenues and expenditures, as the economy, demand and technology change.
  • Better incentives. Creates incentives for drivers and transportation departments to think seriously about the efficiency, quality and costs of transportation.
  • Constraint. Prevents over-consumption and negative externalities, such as congestion and pollution.

The fuel tax has been a successful user fee, but its days are numbered. As an alternative, mileage-based user fees are being tested in pilot projects or used in limited cases. There are still technology, system design and cost issues to be resolved.

New Zealand and Germany have a distance-based fee for trucks. Australia and several European countries are doing pilot projects on applying mileage fees to passenger vehicles.

In the U.S., states have been testing MBUFs for more than a decade. Six years ago, the Fixing America’s Surface Transportation Act created Surface Transportation System Funding Alternatives, a federal program that awards tax dollars to states to accelerate testing of mileage-based fees.

The Issues

  • New tax? Some motorists have raised concerns about MBUFs. There is concern that it will be an additional user fee. But pilots are testing mileage-based fees as a replacement for the fuel tax, not as a new additional charge to drivers.
  • Privacy. The top concern about mileage-based fees is privacy. Privacy can be addressed by having users choose to pay a calculated fee with no data collected on their road use. Alternatively, users who choose an option with a technology that measures their road use can choose to own their data, can determine what data to share and can use private vendors to ensure that the data is not shared with the state unless users agree to share it.
  • Cost of collection. Currently, the cost to collect mileage-based fees is higher than for fuel taxes but does appear to come down with scale. Pilot projects are increasingly exploring how to reduce those costs.
  • Equity. All user fees are levied according to use, not according to income or wealth, so they tend to be regressive. A mileage fee is no more regressive than is the fuel tax, so the shift in user fees will not reduce, or increase, the regressivity of the main transportation user fee.
  • Rural residents. Many rural residents are concerned MBUFs are not fair to them. But mileage-based fees are better for rural drivers. Rural residents already pay more in fuel taxes because they travel farther using more fuel and have fewer fuel-efficient vehicles.
How mileage might compare
How mileage might compare

Research by RAND and by the states of Oregon, Washington and North Carolina found that rural drivers benefit from a shift to mileage-based fees and would pay slightly less. This is appropriate because rural roads also tend to be less expensive to build and maintain than urban ones.

Some environmental groups are worried that MBUFs will discourage purchase of electric vehicles.

Currently, electric car drivers avoid paying fuel taxes. Asking them to pay a fee for the roads they use is reasonable and fair to other drivers. States that have imposed road-use charges on electric vehicles report no change in the trend of EV adoption.

MBUFs are a long-term replacement for the gas tax. In the meantime, it is important to continue state pilots, expanding their scale and scope and starting to address the transition issues.

A national MBUF pilot could be helpful if well designed and executed, which would allow for larger-scale and more extensive testing. A national MBUF pilot should build on the experience of the states.


Adrian Moore is vice president of Reason Foundation and lives in Sarasota.



Adrian Moore

Adrian Moore is vice president of the Reason Foundation and a regular contributor to the Observer. He lives in Sarasota.

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