Vehicle Type Underemphasized in NSTIFC report

The National Surface Transportation Infrastructure Financing Commission (NSTIFC) unnecessarily left themselves open to criticism regarding "one-fee for all vehicles". Leaving vehicle type addressed only in the fine print, many critics made the blunt assumption of a uniform fee regardless of vehicle size, arguing that this would encourage the purchase of large SUVs.

The report does state on page 77: “[Vehicle sales tax] rates could vary to encourage/discourage purchase of different types of vehicles]”; on page 91 Mileage Based User Fees (VMT fees) could be “based on user choice considerations such as … “type and weight of the vehicle, and vehicle emission levels; “type of vehicle” is again mentioned as a mile-based pricing variable on pages 127, 128, 183, 201. So the public criticism is largely because the document enjoys fewer readers than critics and partly because of the report’s emphasis on miles traveled and a lesser emphasis on when, where and what is driven.

There is no need to apply a flat fee, which would indeed make a VMT tax unfair to smaller vehicles and the environment. Unless vehicle type is included with time of trip, distance of trip and place of trip, we will have to leave the fuel tax intact, which will make the application of nationwide road pricing far more difficult politically. Worse, it will not address congestion.

Dr. Gilles Duranton, Economist at the University of Toronto, argues:

“While fuel taxes are not appropriate to deal with congestion or road financing, they are appropriate to deal with carbon emissions and particulates. The external cost of particulates is seemingly much higher than that of carbon emissions (see Parry et al in the Journal of Economic Literature). Those external effects are not related to occupying space on the road but instead caused by releasing pollutants into the atmosphere. How much should a carbon tax on gas be? At a guess, if we think the level of carbon taxation is $50 per ton, this means about 5c per liter. With particulates being more costly to society, we could reach a level of say 20c per liter, which is roughly average gas tax in the US, now. Such a gas tax would be still lower than what we observe everywhere in the developed world.”

While I agree fully with this point, I disagree with an at-the-pump implementation. Isolating a carbon tax on fuel consumption by keeping it hidden at the pump extends the current problem, dilutes the signaling power of VMT pricing, and contradicts some of what the VMT thought-leadership has gained (re shift away from gas-tax). We want to maximize use-signals. But the carbon problem means gas should always have a tax greater than a sales tax. We want fuel tax to become a "sin" tax and no longer a road-tax, which is the point of the NSTIFC work. As a sin tax, it discourages use of the internal combustion engine, while VMT pricing makes road finance sustainable while discouraging congestion.

The VMT party line is that VMT pricing will have a vehicle-type component, and we can reflect the carbon tax in that component, giving us louder signals re congestion. Why? Because (1) the vehicle-type component, IF IT IS SHOWN on the road-use bill, "43% of your road-use bill this month is because you drive a type 6 vehicle” will be more visible; (2) it catches the incremental problem of the internal combustion engine which is exacerbated by congestion (fuel tax at the pump does not catch that, and if it partly does it is not noticed); and (3) taxing this way amplifies my understanding of my driving decisions (spreading and hiding taxes dilutes the social value of taxation).

Of course, I am describing the perfect world, and easy hiding of the tax at the pump may stay as the reality, unfortunately. In either case, the vehicle-type tax-portion will affect ever fewer vehicles as we switch to new energy sources, but a vehicle-type pricing component to VMT pricing will be VISIBLE instead of invisible as the gas-tax is now.