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Should Electric Vehicle Drivers Pay a Mileage Tax?

EV drivers don’t pay the gasoline tax so pay less for roads.

(Today’s post is co-authored by James Sallee)

Every time we buy a gallon of gasoline, we help pay for roads. 18 cents goes to the U.S. Highway Trust Fund. Here in California, 30 cents goes to the state’s Road Maintenance and Rehabilitation Program.

EV drivers don’t pay the gasoline tax, so they pay less for roads. Several states are considering imposing a mileage tax on electric vehicle drivers to make up for the lost revenue.

How much lost revenue are we talking about? And does this policy response make sense? In a new Energy Institute working paper, we ask, “Should Electric Vehicle Drivers Pay a Mileage Tax?

Growing Hole in Road Budgets

According to our calculations, EVs have reduced U.S. gasoline tax revenues by $250 million annually. Of this, 30% ($75 million) is foregone federal tax, while the other 70% ($175 million) is foregone state and local tax.

For this we assumed that EV drivers would have otherwise been driving 15,000 miles per year in a 28.9 mpg gasoline-powered vehicle. These assumptions follow recent economic research (here and here), though we also report calculations based on, for example, fewer miles driven.

We also take into account the highly uneven pattern of EVs across states. As these maps illustrate, there tend to be more EVs in states with higher-than-average gasoline taxes (correlation 0.46). This correlation increases the gasoline tax revenue impacts by about 20%.

Maps
Source: Davis and Sallee, “Should Electric Vehicle Drivers Pay a Mileage Tax?”.  Gasoline taxes include all federal and state taxes including components not explicitly targeted at roads.

This $250 million annually in missing revenue represents less than 1% of total gasoline tax revenue. After all, EVs are less than 1% of the U.S. vehicle stock, so it makes sense the aggregate impact is so far pretty modest. Still, the impact per EV is substantial — $318 annually according to our estimates.

In addition, the missing revenue is highly concentrated in a handful of states. We calculate that for California alone the missing revenue is $90 million annually. California aims to have 1.5 million EVs on the road by 2025, and 5 million EVs on the roads by 2030, 10 times the number today. So, this trickle could soon turn into a flood.

The missing revenue is also highly regressive. We find that two-thirds of the missing revenue comes from households with $100,000+ in annual income. This reflects, as you might have guessed, that EV drivers continue to be disproportionately very high income.

But Wait a Minute

Right about now all the EV drivers are breathing heavily. “Yeah sure, we use the roads, but we create environmental benefits too!”

Yes, according to the latest analysis from Holland, Mansur, Muller, and Yates, EVs do tend to be less damaging than gasoline vehicles. It depends on where you drive, but the U.S. electric sector continues to get cleaner, which reduces the environmental damages from plugging in an EV.

That said, the environmental damages from EVs are not zero. Also, don’t forget, EVs cause traffic congestion and accidents, just like any vehicle. Ian Parry and other economists have argued that these “mileage externalities” are actually larger than the environmental externalities from driving.

charging
Note: EVs are not zero externality. https://www.shutterstock.com/download/confirm/1070497337?size=huge_jpg

Growing Interest in Mileage Taxes

With this as a backdrop, several states are now considering implementing a mileage tax. California, Washington, and Illinois have all conducted mileage tax pilots, and Oregon passed legislation allowing 5,000 voluntary motorists to pay a mileage tax of 1.7 cents per mile, in lieu of gasoline taxes.

A mileage tax would likely be more efficient than a gasoline tax for targeting traffic congestion and other mileage externalities. After all, vehicles create traffic congestion regardless of whether they get 10mpg, 50mpg, or 100mpg. Moreover, a mileage tax would help plug the hole in road budgets.

Mileage taxes are not a panacea, however. For example, traffic congestion depends on where and when you drive. Some people drive on crowded freeways at rush hour, while others drive on uncongested roads at 2am. As Severin points out, what you would really like to do is tax all externalities using time-varying, location-varying dynamic prices.

Key Tradeoff

So suppose we transition to a mileage tax. Let’s assume, moreover, that at least for the moment, the “tax all externalities” dynamically is off the table. In the paper we develop a model of driving under these circumstances and ask what level of mileage tax makes sense for EVs. This exercise highlights a key tradeoff.

On the one hand, driving an EV does generate externalities, which leads you to want to impose a mileage tax on EVs. On the other hand, gasoline-powered vehicles generate externalities too, and there has been a tendency to underprice these externalities. For example, many economists believe that gasoline in the United States is significantly underpriced.

If the externalities from gasoline-powered vehicles are sufficiently underpriced, then you don’t want to impose a mileage tax on EVs. To the contrary, you may actually want to subsidize drivers to use EVs, just so they won’t drive in gasoline-powered vehicles. One possibility would be to subsidize EV purchases, as is currently done, for example, with state and federal EV credits, while simultaneously imposing a mileage tax on EVs.

But again none of this is as good as the “tax all externalities” approach. Perhaps the biggest benefit of moving to a mileage tax would be that, in the longer-run, it becomes easier to implement more dynamic pricing. With the gasoline tax this is impossible, but it would be relatively easy, for example, to move from a simple mileage tax to one that varies by location and hour-of-day.

tesla
https://www.shutterstock.com/download/confirm/736453174?size=huge_jpg

For more details see Energy Institute Working Paper “Should Electric Vehicle Drivers Pay a Mileage Tax?”, by Lucas Davis and James Sallee.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Davis, Lucas and Sallee, James. “Should Electric Vehicle Drivers Pay a Mileage Tax?” Energy Institute Blog, UC Berkeley, April 8, 2019, https://energyathaas.wordpress.com/2019/04/08/should-electric-vehicle-drivers-pay-a-mileage-tax/

Lucas Davis View All

Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Faculty Research Fellow at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. Prior to joining Haas in 2009, he was an assistant professor of Economics at the University of Michigan. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.

20 thoughts on “Should Electric Vehicle Drivers Pay a Mileage Tax? Leave a comment

  1. This has been discussed ad nauseum. A mileage tax is a horribly inefficient and egregiously intrusive way to tax cars. Semi tractor trailer rigs do something like 400 times more road damage than cars, and are heavily regulated as businesses. Leave that in place, charge everyone with passenger sized cars a nominal fee of around $100 per year at registration, maybe $400 for a Chevy Tahoe. Revenue fairly allocated, problem solved without big brother.

    https://streets.mn/2016/07/07/chart-of-the-day-vehicle-weight-vs-road-damage-levels/

  2. Passenger vehicles compared to 18 wheelers – the big rigs do between 4,900 and 60,000 times more road damage. Since transportation costs including taxes are simply passed along to consumers as part of the expense of products, then it makes no sense at all to tax passenger vehicles anything meaningfully. If you were to apportion the actual cost for passenger vehicles, a “reasonable share” of the taxes based on relative road damage would be somewhere between $0.50 and $100 per year. So, ok, add $100 to the annual registration cost of vehicles, up the taxes on big trucks through the existing bureaucracy, and be done with it – but DON’T create yet another massive bureaucracy that is totally unjustified and will simply exist as a means of tracking our every movement. A mileage tax on passenger vehicles is a pure scam, simply another Big Brother power grab. Tell them not only no, but hell no!

  3. This is an old thread, but I thought it worth addressing. Depending on whose numbers you believe, 18 wheelers do between 9,600 and 160,000 times more damage than a 4,000 lb passenger car.
    https://truecostblog.com/2009/06/02/the-hidden-trucking-industry-subsidy/
    https://www.denenapoints.com/relationship-vehicle-weight-road-damage/

    There are only about 3 million 18 wheelers operating vs. about 300 million cars. Since all 18 wheelers are operated as a business and there already exist a mechanism for tracking and taxing their use, it makes far more sense to simply up their taxes and have them pass that along to consumers as part of the cost of goods delivered than to implement a big-brother approach to tracking every vehicle. In fact, based on the above numbers the total specific “fair portion” of road taxs per passenger vehicle is only between a minimum of about $6 and a maximum of about $100 per year – so, in practice, it doesn’t make sense to tax passenger vehicles AT ALL (the “road cost” per vehicle is down in the level of “noise”).

    Which begs the question, why do we have gas taxes at all? Simply charge the 18 wheelers per mile, that cost gets divided up across all the goods they deliver and simply gets added to the cost of products delivered, like every other business expense in the world. The final amount added to a roll of toilet paper, for example, might be a whopping penny. Nobody would notice, no reason to create a vast bureaucracy to track every vehicles movements around the nation.

    Now, politicians have all this information available to them. Why do you think they like gas taxes and mileage taxes? It is solely about power – the excuse they are looking for to increase government intrusion into our lives. Just tell them not only no, but hell no.

  4. Mileage taxes are about CONTROL, not about raising revenue. They give government an excuse to demand yet another accounting of your annual activities which are none of their business.

    For cars and motorcycles, a simple annual registration fee covers it. The fact is, the difference in road wear between one car driving 1 mile or 100,000 miles is insignificant when compared with the damage caused by a single heavy truck – and routine road maintenance is required whether you drive or not in order to keep the roads available and drive-able. The existing large truck fee system need not be changed, although they may bump it a bit and likewise dump the gas tax early.

    To keep it fair, drop the gas taxes meant for road work in the same year switch ALL passenger vehicles over to the fee system. Done.

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