California to study alternative to current gas tax

California SB 1077 (Chapter 835, 9/29/14) calls for creation of a Road Usage Charge (RUC) Technical Advisory Committee by the Chair of the CA Transportation Commission. This 15-member committee is to study alternatives to the gas tax and make recommendations to the Transportation Agency for a pilot program to begin by the start of 2017. The preamble to the legislation notes that existing revenues “for highways and local roads are inadequate to preserve and maintain existing infrastructure and to provide funds for improvements that would reduce congestion and improve service.” It also describes the gas tax as “an effective mechanism” for long-term infrastructure needs due to a few factors including use of more fuel efficient cars. It is estimated that by 2030, fuel efficiency will decrease otherwise available gas tax revenues by half. The bill also notes that Oregon has already studied this issue. Any proposal is to consider privacy implications. The work of the committee and items it must consider are detailed in the legislation.

The Senate Floor Analysis (8/26/14) of SB 1077 describes a “trifecta of circumstances” warranting this study:

(1)  The current fuel excise tax is not indexed for inflation.

(2)  Federal and California policies have required greater fuel efficiency for cars, thereby leading to a drop in collections of a tax based on gallons purchased.

(3)  “Demographic trends and state policies are encouraging Californians to drive fewer miles per capital.”

For more about Oregon’s work on an alternative to the gas tax based on gallons purchased (which dates back to 2001) and other information on a vehicle miles traveled (VMT) approach, see:

·         Nellen blog post of 3/16/13 (with links to federal and Oregon activities)

·         Oregon’s Road Usage Charge Program – to test a mileage collection system for 5,000 volunteers starting 7/1/15. Per the website, “may assess a charge of 1.5 cents per mile for up to 5,000 volunteer cars and light commercial vehicles and issue a gas tax refund to those participants. This will not be another pilot program but rather the start of an alternate method of generating fuel tax from specific vehicles to pay for Oregon highways.”

·         Background on Oregon’s Road User Fee Task Force (created by 2001 legislation)

·         Information from the US Federal Highway Administration on Vehicle-miles Traveled (VMT) Fees.

·         CBO, Alternative Approaches to Funding Highways, March 2011

If you want to know more about the gas tax in your state or others - when added, rate, whether adjusted for inflation, etc., the Tax Foundation has a helpful website.

I think it makes sense to change the gasoline excise tax to tie to miles driven rather than gallons purchased. For example, why should someone with a hybrid or electric car, not have to pay for road maintenance and expansion? Technology should enable the necessary data to be collected while still protecting privacy. Also, when Oregon started its study back in 2001, I think there was a greater interest in privacy than exists today. For example, many people already have readers in their cars for toll booths. Also, lots of people post all kinds of private photos and information (including their location) on the web.

The California study sounds like it will explore more than a VMT.

What do you think?

7th Anniversary of 21st Century Taxation Blog

Today - May 14, 2014 marks the 7th anniversary of this 21st Century Taxation Blog. I started this blog when I was a fellow with the New America Foundation.  I was charged with getting new ideas out into the mainstream, such as through op eds.  Given the times, I thought a blog might also be a helpful approach.  I think it has.  I aim to post at least weekly and now I also blog at SalesTaxSupport.com and Biowebspin and my blog entries are picked up by Proformative and Tax Connections.  I've met people I likely would not have met if I had not been blogging.  And, it's fun.

My initial aim hasn't changed.  I aim to critique proposals and existing rules as to whether they meet principles of good tax policy and help move our tax systems into the 21st century ways of living and doing business.  I also suggest some ideas of my own. And I've got a variety of websites related to tax reform at http://www.21stcenturytaxation.com/.

Here are two reforms I'll offer today:

1. As part of federal income tax reform, repeal Section 263A - the unicap rules.  These rules were not really needed when enacted as part of the Tax Reform Act of 1986.  Their main purpose was likely as a revenue raiser to help lower rates. These rules apply to large retailers (over $10 million of receipts) and producers of tangible property (whether for self-use of sale). We have other rules governing capitalization of benefits that provide long-term benefits (Section 263(a)). We have longstanding rules on what a producer of inventory needs to capitalize (similar to what is required for books). Also, today, companies likely employ more just-in-time inventory practices than in 1986.  Unicap requires calculations and recordkeeping beyond what is required for financial statements. It is only a timing difference. Let's really simplify the federal income tax law and repeal it.  [See 2008 post and link to a "trends" and tax reform table at the end.]

2. As part of eliminating the continued deficits in the Highway Trust Fund, let's explore a gas tax that is not based on how many gallons of gas you purchase. Instead, let's find a way to tie it to how many miles you drive.  With people driving more fuel efficient cars, including ones that don't even require purchase of gasoline, the current system is outdated. Oregon experimented with a vehicle miles traveled approach and there are studies out on alternatives. [See 2010 post and 2014 post.]

What do you suggest to move our tax system into the 21st century?

Thanks for reading this blog!

Time to adjust gas tax

The federal and California gasoline excise tax are each 18 cents/gallon and have been at these low rates for many years (see CRS table). At the federal level, the tax doesn't generate enough to support the needs of the Highway Trust Fund (see posts of 7/28/08, 9/5/08 and 6/17/10). We drive less when gas prices rise and there are more people driving fuel efficient cars (I only put gas in my Prius about every 5 weeks but drive about the same as before I had this car).

The Institute on Taxation and Economic Policy has released a report on the gas tax and the need for states to increase the rate.

I agree. The amount should be adjusted for inflation from what was set at 18.4 cents/mile at the federal level in 1994 with an annual inflation adjustment built into the law. Perhaps it should also be raised beyond inflation adjustments, at least in California where we have ambitious greenhouse gas emission reduction targets.

Here are the recommendations of the ITEP:

• Increase gas tax rates
• Adjust the rates to tie to increased rates of construction costs
• Create targeted credits to assist low-income taxpayers

We also need to rethink the cents/gallon approach because with more fuel efficient cars, we are driving the same (or maybe even more), but paying less gas tax because we buy less gas. While cents/mile approaches have been approached, they are difficult and perhaps intrusive to implement. While my lightweight Prius isn't causing much road damage, I still benefit from maintained roads and items are delivered to me via trucks and my garbage is picked up weekly by very heavy trucks so I am contributing to wear and tear on the roads and should be paying more to maintain them. Perhaps garbage fees should include a road maintenance fund.

What do you think?

Highway Trust Fund Problems Continue

I was quoted in a MinnPost article today about a long-standing problem that I've blogged on before (see 9/5/08 post). With people driving more fuel efficient cars, less gasoline excise tax is collected, yet the roads still require the same amount of maintenance.

In today's Minn Post article ("Oberstar points to road problem: a shortage of federal gas-tax revenue"), Derek Wallbank explains why there will be about a $140 billion deficiency in the highway trust fund (HTF) due to a decline in gas tax revenues. He also notes that the gas tax has not been increased since 1993.

"Because it is not adjusted for inflation, the federal gas tax has experienced a cumulative loss in purchasing power of 33 percent since 1993 — the last time the federal gas tax was increased."

Possible short-term solutions - other than continuing the new practice of shifting large amounts of money from the already trouble General Fund to the Highway Trust Fund ($8 billion was transferred in 9/08):

• Increases to the gasoline excise tax should be phased in over a period of years starting January 1, 2011 (delayed until at least then to help the struggling economy).
• When CAFE standards are increased or dates for meeting them moved up, there should be an accompanying increase in the gasoline excise tax. [info from DOT]
• Review the work undertaken by Oregon a while back to get ready for this new issue of more fuel efficient cars. Many people don't like the VMT approach - where you pay based on miles driven, because then we need some way to track our miles (which our odometer already does, but doesn't record it anywhere) and it would not necessarily encourage more fuel-efficient vehicle purchases. The National Surface Transportation Infrastructure Financing Commission also has studied alternatives. They issued a comprehensive report in February 2009, but it doesn't seem to have received a lot of attention. The GAO also issued a report (shorter) in June 2009. There was a hearing in the House Budget Committee on 3/17/09.
• Look into value pricing. Some people are willing to pay more than they currently do and we should take advantage of that. For example, allow people to pay a premium to drive in the carpool lane during certain times of the day. [info from DOT]

What do you think?