Why Mileage Taxes Are a Bad Idea (And Why They'll Succeed Anyway)

In the murky, convoluted world of taxation, developing a tax that corresponds directly with consumption is an ideal that can't always be met. Sure, a sales tax is pretty linear, but how do you measure use of, say, streetlights and tax people accordingly? It's a conundrum highlighted by America's crumbling roads. Some people drive more miles, others with heavier, road-buckling loads. Shouldn't they pay more to keep them up?

A growing wave of politicians thinks so, and they think they've found the answer: By installing GPS trackers in people's cars, drivers can be taxed per mile in order to ensure people's road taxes are commensurate with their road use. It's a controversial topic, as evidenced by Evan Halper's great story in the LA Times, which has racked up more than 25,000 shares since Saturday.

And, as Halper notes, it's a rare debate in which the sides are all jumbled, with libertarians joining environmentalists, and anti-tax Tea Partiers joining sides with the ACLU. Yet despite the controversy, Halper writes that several states "are exploring how, over the next decade, they can move to a system in which drivers pay per mile of road they roll over. Thousands of motorists have already taken the black boxes, some of which have GPS monitoring, for a test drive."

A mileage tax does seem like a reality for drivers, but is it a good idea? There are many reasons why it isn't, which are balanced by a few very good reasons why it is. Let's dive in, shall we?

We've already got a consumption-based road tax

At first glance, mileage taxes seem to fix a problem that's already been solved: The fuel taxes that fund infrastructure are already based on consumption. If you drive more miles, you buy more gas, and thus pay more taxes. Simple, right? Better yet, fuel taxes have a second layer of incentive: If you want to spend less on taxes, you can either drive fewer miles or get a more fuel-efficient car. If you get an electric car, you can cut out fuel taxes altogether.

In a world faced with overdependence on fossil fuels and a need to tackle climate change, a tax that encourages people to be more efficient even if they're unable to drive fewer miles is superior to one that charges people for driving, no matter how efficient their car is. The change actually works, too: an MIT study last year found that gas taxes are six times more effective than stricter fuel economy standards at convincing people to buy more efficient cars.

CAFE standards have gotten stricter, but those largely affect automakers, not consumers. That means automakers have to try harder to make more efficient SUVs, rather than starting off with a smaller, more efficient car in the first place. If roads need more funds—they do—higher gas taxes would actually help build consumer demand for more efficient vehicles, something a mileage tax doesn't directly address.

So why don't states or Congress raise gas taxes? Suffice it to say that such a hike is political suicide, which has left politicians trying to work their way around the problem.

Seriously though, who wants to be tracked?

Aside from the complexities of tax reform, there's another very obvious problem with installing GPS trackers in cars: Who, in 2013, would purposely allow someone to track them? While the pay-as-you-go argument for the road tax is certainly an easy one for politicians to sell, it's ignoring a very real potential for abuse.

A few years ago, that may have sounded like tin-hattery, but considering that this year we've learned about everything from massive government spying programs to vast license plate scanning efforts, it no longer sounds strange. Hell, the FBI has already gotten in trouble for illegal GPS tracking, so how can anyone assume that a GPS linked up to a tax system couldn't be subverted? They shouldn't.

Aside from that, GPS tracking for mileage taxes comes at a time when another industry is looking into GPS tracking: auto insurance. Insurance firms like Progressive are already handing out monitors that track how drivers, well, drive. Those that use the monitors are repaid with cheaper rates, which insurance companies can swallow because they know they'll have more data about any accident—whether the driver was speeding, for one.

Mix all of that into a safe-driving stew and you've got a very plausible portrait of where driver tracking technology can go: Speed, and you'll get mailed a ticket, along with a ding on your insurance rates.

Then again, we have to pay for roads somehow

The mileage tax is an attempt to fix one of the largest problems facing America: Our infrastructure, which our economy thrives on, is crumbling. The 2013 American Society of Civil Engineers Infrastructure Report Card gives the US a D+, with $3.6 trillion in investment needed by 2020. Sounds shocking, right? The ACSE has been saying the same thing for a decade, and yet our roads and bridges continue to crumble. It's only making things worse, as the cost of overhaul is far more expensive than regular upkeep.

It's true that Americans are buying less gas than they used to, which has led to fewer gasoline taxes. But the US is still consuming more gasoline per year than it ever did in the 20th century. Lower consumption and hybrid cars aren't the entire problem. The political establishment's inability to raise gas taxes in 20 years, despite desired increases in efficiency, is a major reason road budgets have been left lagging. Raising gas taxes could raise needed infrastructure funds while still continuing to offer consumer incentives for efficient vehicles, along with an incentive for driving fewer miles.

At the same time, gasonline consumption will likely continue to trend downward, especially as CAFE standards get stricter and more people shift to electric vehicles. Faced with that reality, a consumption-based tax like a mileage tax is far superior than, say, diverting income taxes towards roads.

Plus, a mileage tax doesn't have to be creepy. A study last year found that odometer-based solutions, which would use your car's own mileage tracker, rather than GPS, can be just as effective. It also found that, once people understood exactly how the tracker and tax worked, a majority viewed it positively. Again, the notion of pay-as-you-go sits extremely well with a lot of people, as it simply seems fair, even if a large SUV actually is more costly for the roads and environment than an econobox. Plus, it kills a major incentive for the budding EV and alternative fuel industry, as one reason people justify spending more on an EV is lower fuel and fuel tax costs.

The simplest answer (sorry for waiting so long to share it!) is that there is no perfect method of taxation, and the current setup has left roads chronically underfunded. It would appear that a gas tax hike—which, as unpalatable as a tax hike is, offers a lot of positive outcomes—remains off the table. A mileage tax is likely the next best answer, and will only become a better answer as less and less gas is used. Yet the privacy concerns regarding GPS tracking are particularly grave, especially when alternatives exist. But a wave of momentum for mileage taxes is growing after years of discussion, and it appears they're coming for real this time.

@derektmead