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EV Road Tax Proposals Pit Innovation Against State Budgets

<p>Lawmakers' proposals for EV road taxes are fueling a controversy as state governments scramble to protect vital revenue streams from disruptive innovations, like the electric car, that challenge traditional tax collection models.</p>

Last month, the Washington State Senate approved a bill to assess an annual fee of $100 on electric and plug-in hybrid vehicles. The measure is designed to offset lost revenue needed to maintain state roads as demand for gas slows and gas-tax revenues decline. Oregon legislators have proposed their own scheme, which would levy a vehicle miles traveled tax of 1.43 cents on all alternative fuel vehicles starting with the 2014 model year.

These early efforts by state governments attempt to protect vital revenue streams as disruptive innovations, like the electric car, challenge traditional tax collection models. Today, drivers of conventional vehicles pay about two cents per mile in combined state and federal gas taxes.

Once highly fuel-efficient and alternative fuel vehicles comprise a significant portion of the state fleet, Oregon hopes to supplant its existing gas tax with a new VMT tax system for all vehicles. Texas, too, has proposed a VMT tax, and other states are following closely as they consider putting forth legislation of their own. The tax controversy is generating buzz as the New York International Auto Show kicks off this week -- with a great number of electric cars on display.

The electorate should expect policies that account for evolving technology and require drivers to pay their fair share to maintain state thoroughfares. Nevertheless, some parties are crying foul, arguing that the new taxes fly in the face of rhetoric and counteract current policy incentives that support the adoption of electric vehicles.

Clean vehicle advocates have a point. Electric and other alternative fuel vehicles create a social good through reductions in emissions and noise pollution that significantly benefit state residents. The proposed tax code fails to take this into account, distorting the true value of these cars relative to the installed base of internal combustion engines.

So what is fair exactly? Should a vehicle like the Chevrolet Volt, an electric car that can also run on gas, be subject to double taxation under the new regime? What about drivers that pay a VMT in one state but are charged a gas tax when they fill up in another? Should heavier vehicles that burn more fuel and inflict greater damage to our infrastructure pay the same road building and maintenance tax as a smaller car that travels the same distance?

To date, no state has presented a particularly compelling solution for actually levying the VMT. One proposed mechanism -- non location-based odometer readings transmitted wirelessly to the state -- seems to create a major administrative burden for the tax collection agency and individual drivers (drivers would have to submit for tax reimbursements based on miles traveled out of state), and is already being criticized as an assault on privacy.

Unfortunately, it seems that electric vehicles are unfairly caught in the crossfire of what should really be a debate about efficient tax policy in general and the appropriate role of taxation in incentivizing behavior. These tax proposals may not significantly alter the economics of new, alternative fuel vehicles. However, with recommended phase-in dates between 2014 and 2020, they do raise some longer-term questions.

Getting Serious

Forget alternative fuels for a moment. If we want to reduce the federal deficit, if we want safe and reliable roads over the next 20 years that can take us to work and carry our troops safely in the time of national security needs, if we want cleaner, more sustainable transportation, we need to get serious and fix the tax code today.

Based on a 2005 study completed by the Oregon Department of Transportation (pdf) expressly for the purpose of evaluating various options of improving the tax code, it becomes clear that the real issue is not that alternative fuel vehicles are taking advantage of loopholes (this may be true, but there are barely enough vehicles on the road for this to be a major point of concern), but rather that the current structure for collecting taxes to support our country's infrastructure is fundamentally broken.

What's Broken Exactly?

The Oregon report evinces some known, but troubling statistics. The gasoline tax isn't being adjusted for inflation, hasn't risen since 1993, and thus, the real value it brings into the state has declined by half since 1970. The report goes as far to say:

"The gasoline tax has quite obviously, and potentially catastrophically, become de-linked from road usage at both the absolute statewide level and in relation to actual individual use of the roads. The gasoline tax is failing the purpose for which it was originally intended -- funding the efficient operation and maintenance of Oregon's road system."

As the Economist reports, this isn't unique to Oregon either. While fuel tax revenues have actually risen in some states, like Virginia, existing federal fuel tax rates can no longer sufficiently fund highway spending, and are not high enough to make any real impact encouraging sustainable driving behavior. Clearly it is not alternative fuel vehicles that are siphoning off precious funds from the government, but a prolonged leadership vacuum within the government itself.

Charting a Smart Path Forward

Political skittishness should be no excuse to push off problems until election terms expire. It's time to march to the beat of our own rhetoric and put thoughtful policies in place to solve real systemic problems now. If these states and the rest of the country truly believe in supporting more sustainable transportation, why not pass a modest tax hike on gasoline in the short term to help cover the transition to a new paradigm that includes alternative vehicles? Unlike the pocket change state governments will pull in from the mere thousands of electric vehicles on the road, incremental revenue from a gas tax could actually support our road infrastructure, ensure that our bridges don't collapse beneath us, reduce part of the national deficit, and support R&D for millions of new clean vehicles.

The recent squabble over the national budget in this country has made it painfully clear that we can't keep spending without raising taxes or making some sacrifices. While we're adapting the tax code for more efficient vehicles, why not take the opportunity to rethink the code and what we're trying to incentivize more broadly. Some states already collect registration fees by vehicle weight, rather than value or propulsion type. In the EU, member states use vehicle emissions as a way to encourage the purchase of more fuel-efficient vehicles, though the revenues aren't used to fund infrastructure. We could adopt and expand these rules across the country if our nation is actually serious about behavior change and climate change.

A Positive Outlook

While these recent policy developments are sure to draw continued ire, perhaps the debate itself is the most significant outcome for proponents of electric vehicles. The fact that these conversations are taking place at all indicates a shift in thinking at the state level from "EVs are coming" to "EVs are here to stay."

Image CC licensed by Flickr users Tom T and Kevin Krejci

 

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