Monday, October 04, 2004

Gas Taxes

Charles Kuffner has a post up dicussing proposals to replace gas taxes with mileage taxes using GPS systems. That is, instead of having people pay based on how much gas they buy, you tax them based on how many miles they actually drive. I'll leave aside the privacy issues which are serious for obvious reasons, and just discuss the economic ones.

Why do we have a gas tax at all? The first is the usual reason we have taxes - it's a revenue instrument for governments. But, why a "special" tax on gasoline? There are two basic reasons:

a) it acts as a very rough form of "user fee" for roads and highway. This has the general appeal that people who use this particular government service end up paying for it.

b) there are unpriced externalities of driving your car around. Obvious one is that you contribute to wear and tear on the roads (this one fits in with the 'user fee' aspect). Second one is that there are negative effects on the environment. Third one is the "congestion" externality - your presence on the road slows things down a little bit for everyone. Taxing gas raises its effective price - if done correctly bringing the cost of driving your car more in line with the actual cost to society - and reduces the amount which gets used, both by discouraging driving generally and by encouraging people to buy more fuel efficient vehicles.

So, how could a per mile fee be superior to a gas tax? For wear and tear, roughly, it would be worse -- heavier cars, which cause more wear-and-tear on roads, would be taxed the same fee as lighter cars, while with a gas tax they're charged more per mile. Ditto for the environment.

A per mile fee could, in theory, be much better for dealing with congestion -- as the fees could vary across time and location. That is, congested roads at peak times could have higher per mile fees than other locations, encouraging drivers to adjust their time of travel and choice of route/mode. But, we can already do that by expanding existing easypass toll systems on primary commuting routes. There's no real advantage gained by making it a universal system - most roads, even at peak commuting times, aren't particularly congested.

On balance, even ignoring the privacy issues I really can't see how a per-mile fee is an improvement over the gas tax. I'm all for both increasing the gas tax (and, yes, offsetting it with a low income tax credit to offset the regressive nature of the tax) and increasing the number of sensible toll road schemes (as well as getting rid of a whole host of various implicit and explicit driving and parking subsidies), but a mile-based fee seems to offer few if any advantages and huge disadvantages. Gas taxes encourage people to buy more fuel efficient cars. A per mile fee wouldn't.

But, what do I care. I don't even own a car.