Freakonomics: Doing a U-turn on the gas tax

The gas tax helps pay for our roads; and we’re not collecting as much money as we need. How do we fix it?

The cars we drive today are more fuel-efficient than ever, and that would seem to be great news for everyone. But here’s one downside: transportation budgets are heavily powered by the gas tax.

"And right now, the nation relies extremely heavily on gas taxes for transportation funding," according to Jaime Rall, from the National Conference of State Legislatures. She says that better fuel mileage means less money for roads and bridges. "Advancements in fuel efficiency pose some real problems for transportation budgets."

Plus, the gas tax isn’t a percentage but rather a fixed amount -- which, because no politician wants to raise the gas tax, has been stuck at 18 cents a gallon for 20 years.

So what should be done about it? The most sensible may also be a hard sell: billing drivers based on their mileage.

"At least 18 states have pursued pilot projects," says Rall. "And in the past five years, legislatures in at least 11 states have considered more than 20 proposals to establish or study state level fees of this kind."

Another idea, ready for import from Finland, is to base traffic fines on the driver’s salary. Just a few tickets from a few speeding billionaires could help balance any budget in a hurry!

Kai Ryssdal: Time now for a little bit of Freakonomics Radio -- that moment in the broadcast every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is “the hidden side of everything.” Dubner, how you been, man?

Stephen J. Dubner: Great Kai, thank you. Been thinking about you. You drive a lot out there in California, right?

Ryssdal: It’s L.A. baby. Of course we do!

Dubner: What are you paying for gas these days?

Ryssdal: Oh, a lot! It’s over four bucks a gallon.

Dubner: So people generally don’t like that, even though relatively we pay pretty cheap gas. The good news, however, is M.P.G. -- miles per gallon. We are now at a point where we get more miles per gallon of gas than any time in history, about 24 miles on average for the U.S. car fleet. And that number because of federal regulations is going to go up quite a bit in coming years. So great news, right?

Ryssdal: Great, yes. Now what? With you, it’s always good news, bad news, dude. What do you got?

Dubner: Well, let’s go a little deeper. Fuel economy goes up, which means what? It means that the cost of every mile you drive goes down. So people have an incentive to drive more, which can lead to more congestion, more risk of accident, but there’s an even less obvious problem than those. Where do we think the money to build and maintain our roads all comes from?

Here is Jaime Rall from the National Conference of State Legislatures.

Ryssdal: Okay.

Jamie Rall: And right now, the nation relies extremely heavily on gas taxes for transportation funding and advancements in fuel efficiency pose some real problems for transportation budgets.

Ryssdal: If you follow the logic train here, it’s people are using less gas because cars are more efficient, and then there’s less tax revenues being raised to pay for the road. Right?

Dubner: You got it. Revenues are hurting. But it hurts additionally because the gas tax is such a strange tax. Instead of being a percentage of, you know, whatever, two percent, five percent per gallon, it’s a fixed rate. So the federal rate is 18 cents a gallon. States add their own state taxes on -- again, a fixed rate. But because it’s fixed, unlike, let’s say, a sales tax, you don’t raise more tax revenue when the price of gas goes up. So every year, what happens is gas tax revenues lose purchasing power.

Ryssdal: All right, so this is one of those gotta-ask-it questions even though I know the answer. Why not just raise the gas tax?

Dubner: It would seem logical. Many economists have been lobbying that for years. But politically, for whatever reason, the gas tax is one of these things that’s just a no-go zone.

Ryssdal: All right. So find me the Freakonomics way out of this then.

Dubner: Well, let’s go down a wrong path first, shall we? I hate to pick on politicians, but the governor of Virginia, Robert McDonnell, has an idea that seems like a pretty bright idea, but most economists would say it’s not bright at all. What he wants to do is eliminate the state gas tax in Virginia and make up for those funds by raising the sales tax.

Ryssdal: And that’s a bad idea because...

Dubner: Because a tax is most fair when it hits the people who should pay it, but leaves everyone else alone. Right? But what Gov. McDonnell is doing is flipping that logic.

Ryssdal: All right. So hit me with your plan.

Dubner: Well there is a growing movement -- I don’t know how well this would work -- but the idea is this: to tax drivers the way they probably should be taxed, which is per mile driven. So that way, you’d pay the same amount for the roads whether you’re driving, you know, a gas-guzzler, or an electric car that doesn’t use any gas at all. Here’s Jaime Rall again.

Rall: At least 18 states have pursued pilot projects. And in the past five years, legislatures in at least 11 states have considered more than 20 proposals to establish or study state level fees of this kind.

Ryssdal: Yeah, you know what though? This smacks of Big Brother watching me when I drive, dude. Knowing where I’m going. Right?

Dubner: Yeah, people will not like this idea, in many cases.

Ryssdal: They’ll go nuts!

Dubner: On the other hand, let me just say this: we’ve all gotten used to willingly carrying around a GPS device with us at all times, which is what a smartphone does, right? We’re also getting used to the ideas of electronic tolling where we don’t have to stop at the booth. So I wouldn’t be shocked if we were to see some per-mile taxing in the future. If things get really desperate, if you really need to raise money for roads, we could try what they do in other parts of the world, which is this, Kai: traffic fines that are indexed to how much money you actually earn. So, in Finland for instance, if you get a speeding ticket, you’re fined about 20 percent of one month’s take-home pay. So, you know, the speeding fisherman is going to pay a lot less for his ticket than the speeding high tech boss or radio talk show host, for that matter.

Ryssdal: Yeah, ba dum boom. One cautions though, that this is America my friend. Not Finland.

Dubner: That’s true -- not yet, Kai. Check in with me in a couple of weeks. We’ll see if we’re all looking a bit more Finnish around the ears.

Ryssdal: Steven Dubner, Freakonomics.com is the website. We’ll see you in a couple of weeks.

Dubner: Thanks for having me, Kai.

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