On March 31st, the Biden administration announced its infrastructure bill. While many aspects of the $2 trillion plan promise change to the current system, one stand out is the plan around EV’s. As mentioned in a previous blog, electric vehicles can’t take off until systems are in place to support travel beyond one region. This infrastructure bill intends to do just that. But this raises questions about downstream impacts of a large-scale transition from internal combustion engines (ICE) to electric vehicles.
Taxes on gas have been around for a long time. Currently, drivers pay federal taxes of 18.3 cents per gallon of gasoline, 24.3 cents per gallon of diesel. Depending on where you’re pumping, state, county and local taxes may also apply. But the federal rate does not change a whole lot. The last time it was raised was October of 1993. And, while the tax has risen a good deal since its introduction—one cent—in 1933, its purpose remains more or less the same: paying for repairs and improvements to infrastructure.
Electric vehicles may just be the future. With California, New Jersey and Massachusetts working on eliminating gas-dependent vehicles and auto makers promising to deliver greater selection in the EV market, ICE vehicles of today will find themselves in the minority. So what happens when the consumption of fuel is halved, along with that tax revenue?
While the gasoline excise tax does apply to goods created with gasoline as well (plastics, etc), fuel consumption is a large source of that tax revenue. Unfortunately, it hasn’t been able to effectively support infrastructure needs. While most of the Highway Trust Fund’s contributions (85%-90%) have been the fuel tax, Congress has needed to transfer $157 billion to cover infrastructure needs since 2008. And electric vehicles, while not burning gasoline, will still erode the roadways repaired by the gas tax. Eventually this funding gap will have to be filled.
In their current stance, the administration is not considering a raise in the gas tax or a vehicle-miles-traveled tax. And the reason why is fairly simple. As necessary as they are, raising taxes is unpopular. But, with the strong movement encouraging electric vehicles with incentives and state policy, something will have to be done. So what would a vehicle miles traveled (VMT) tax look like?
In 2019, Oregon rolled out a VMT tax, around 1.8 cents per mile. Participants were asked to sign up, select a mileage reporting option and then pay their bill for miles traveled. Those with gas-dependent vehicles already paying the fuel tax but those that adopt the new system can receive a credit. Creating a process like this country wide will require considerable planning, messaging and manpower. Hopefully, the challenge of change will not prevent the creation of an EV infrastructure, among other pieces of the infrastructure bill.
What comes next?
Whether the infrastructure bill passes is entirely up to Congress. As it currently stands, it’s unlikely to have bipartisan support. But who can say what will happen in the next several months. Regardless of party affiliation, Americans can agree that infrastructure is vital to our country. Without safe roadways, business and personal travel become needlessly dangerous. Whatever the vehicle of the future may be, a tax that continues to support maintenance and improvements to the highway infrastructure will be necessary.