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.
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