The "gas tax" in the U.S. is money raised both by the federal government and individual states (separate taxes) and used to invest in the national road system. It is one of the most effective taxes because it is targeted and, at the federal level, famously has not been raised since the 1993 (for a breakdown of state-by-state taxes, see here). In spite of being so effective, politicians are so afraid to introduce any increase in the overall tax burden that investment has dropped, and the country's infrastructure has suffered. The article in the url below argues this situation is about to get worse, as drivers increasingly trade-in internal combustion engine cars and replace them with EVs, which obviously do not need any petrol:
"Back in 2001, … lawmakers in Oregon recognized that the adoption of EVs and hybrids would eventually mean less revenue from the state's gas tax, which would mean less money to pay for roads and bridges. So they formed a committee to study the problem. After considering a tire tax, a battery tax and numerous other options, the committee concluded that Oregonians should be charged based on how many miles they drive. Twenty-two years later, the Road User Fee Task Force continues to operate small pilot programs. But like most other states that have seen gas taxes start to evaporate, Oregon still doesn't have a mandatory alternative revenue plan in place. … all proposed solutions are problematic."
There is still time, but given the seemingly omnipresent dysfunction in politics, it is hard to see how this essential problem can be overcome. In order to meet the ever-stricter gas mileage requirements being imposed by states, and in addition to growing consumer demand, sales of EVs will only rise:
"Electric vehicles currently account for only about 5% of new car sales in the U.S., but that figure will climb to at least 40% by 2030, according to S&P Global Mobility forecasts. Two years ago President Biden signed an executive order calling for half of the vehicles sold in the U.S. to be electric by the end of the decade. A few states, such as California, have been even more aggressive, mandating that all new cars sold after 2035 meet zero-emission standards."
While there are multiple sources of investment funds for road infrastructure, the gas taxes are central:
"States pay for roads in a variety of ways, including vehicle registration fees and tolls, plus money from their general funds. Gasoline taxes account for a large portion of revenue, with the average U.S. rate currently at 32.3 cents a gallon at the state level along with 18.4 cents in federal tax. (Both figures are somewhat higher for diesel fuel.) Even without the impact of electric vehicles, gas-tax revenue is falling as new cars become more fuel efficient and Americans do less driving."
As with so many issues in the U.S., the response by individual states varies significantly. At least most states understand this is a problem that they need to solve:
"Faced with crumbling infrastructure and reduced revenue, 31 states and the District of Columbia have implemented some form of variable-rate gas tax. … Several states are seeking to recoup revenue lost to electric vehicles by imposing new fees on EV owners. Last month Texas began charging $400 to register an EV, plus an additional $200 every year thereafter—on top of the $50.75 registration fee all car owners pay. In all, 33 states assess annual EV fees, according to the National Conference of State Legislatures. Meanwhile, seven states levy a tax on electricity at EV charging stations. Most are directing the funds to road construction, although Iowa's tax is being placed in a statewide economic development fund. … A road-usage fee is the most frequently cited long-range alternative, as Oregon's task force determined 22 years ago. More than a dozen states are studying it and four—Oregon, Utah, Virginia and Hawaii—have implemented voluntary pilot programs. Hawaii's model, which begins in 2025, will apply to only electric vehicles at the start, with motorists opting to pay a flat rate annual fee of $50 or get charged 0.8 cents per mile."
But, as Oregon has learned, fixing the problem in theory is very different than implementing a lasting solution in practice:
"… if Oregon has learned anything after 22 years of study—including a voluntary program with fewer than 1,000 participants—it's that the road to finding an alternative to gasoline taxes is filled with potholes."
Take care
David
David Chandler
© Sage Publications, 2023
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How Will States Pay for Roads When Gas Taxes Evaporate?
By Peter Funt
October 21-22, 2023
The Wall Street Journal
Late Edition – Final
C4
