Back in 2023, I wrote a blog post about different transportation policies. One of the policies I mentioned in that piece was a vehicle miles traveled tax.
As a quick recap: A vehicle miles traveled tax tries to solve a problem created by people shifting away from gasoline powered vehicles to fully electric and hybrid cars. Historically, the gasoline tax has acted as a de facto user fee for drivers on public roads. People who use the roads more have to buy more gas, which leads to them paying more money in gas taxes.
In general, gas taxes are used to pay for things like road maintenance, they help provide the funds for the government to provide transportation infrastructure. However, this whole system begins to fall apart if people are able to use public transportation infrastructure without consuming any gasoline, like when people drive electric cars.
The idea of a vehicle miles traveled tax is to directly charge a user fee on road use in the form of a tax levied on the number of miles you traveled. No more fiddling around with gasoline as a proxy – the more you drive, the more you pay.
When I wrote my initial blog post on this topic, I speculated about some of the equity implications this tax might have. I initially guessed that this policy might have a higher burden on low-income individuals who were unable to substitute away from traveling in their cars. My theory was perhaps higher earners could work from home, or had more opportunities for things like carpooling.
Fortunately, we no longer need to speculate who wins and loses from a shift to a vehicle miles traveled tax. A new working paper by researchers at MIT and Tufts University actually calculates whose tax payments would increase or decrease under a national vehicle miles traveled tax.
To conduct their analysis, these researchers assume that the federal gasoline tax would be replaced with a revenue neutral vehicle miles traveled tax. They use data from the National Household Transportation Survey to predict how many miles households travel at the census tract level.
One of their main findings is that compared to the federal gasoline tax, a theoretical federal vehicle miles traveled tax would be relatively more progressive. People in the bottom 60% of the income distribution will on average see their post-tax household income increase because of this change. Households in the top 80% will instead see a decrease in their current incomes.
Another key finding was that rural parts of the country see major gains under a vehicle miles traveled tax, while urban and coastal areas see some of the largest increases in their bills. This is because the middle part of the country on average has lower fuel efficiency vehicles on average. Conversely, coastal states like California have begun to adopt mandates that will require new vehicles being sold to be fully electric.
One consideration about this study is that the authors assumed a policy construction that would maintain the same amount of total revenue. There are plenty of ways to go about implementing a vehicle miles traveled tax that could have different distributional implications. A past study of ours looks at how Ohio could potentially implement a state vehicle miles traveled tax.
There is going to be a lot of debate over how to fund transportation infrastructure in an era of electrification, and it will be critical to understand the winners and losers of any policy that responds to our changing world. Research like this is going to be extremely important to help policymakers design policies that ease the transition into a world that relies less on gasoline.