gas-tax-prius-plug-in2Shifting America’s transportation sector to electric vehicles (EVs) is a noble goal, especially in an era of dangerously polluted air and increased dependence on foreign oil. However, current programs incentivizing such a switch have important implications to consider. One of these is the impact a rise in the number of non-gasoline vehicles will have on a primary tax revenue generating method: State and federal gasoline taxes.

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For example, according to a thought-provoking blog entry on Autoblog.Com, “How the gas tax is under threat from green vehicles”, federal and state tax incentives to encourage drivers to switch to electric vehicles (EVs) could increase U.S. debt to dangerous levels.

If major automakers reach their battery-powered car sales targets by mid-decade, the author of this blog entry, Paul Eisenstein, suggests that the $7,500 tax credit may rob billions of dollars from the national treasury.

Gas tax major revenue producer
Currently, fuel taxes are one of the leading sources of government revenue. The federal government takes 18.4 cents for each gallon of gasoline sold. All told, more than $100 billion worth of gas tax revenues flow into local, state, and federal coffers each year.

President Obama’s goal of putting one million battery-powered vehicles on the road could take up to $500 million out of that revenue source, according to Eisenstein.

Obama’s push for higher Corporate Average Fuel Economy (CAFÉ) standard to potentially 62 m.p.g. by 2025 will also greatly reduce the fuel tax.

Per-mile taxation of EVs?
States such as Oregon and Washington are considering a per-mile usage fee on EVs. This could be applied by having drivers show how many miles they drove when renewing their registration each year.

According to Edward Niedermeyer’s blog entry, “Oregon Debates Pay-Per-Mile EV Tax,” Oregon initiated a pilot program from 2005 to 2007 to study the method of pay-per-mile taxation using GPS tracking devices.

gas-tax-prius-plug-inThe state legislature has put forth a bill to help cover the cost of road construction and maintenance by making drivers of 2014 model EVs and plug-in hybrids and thereafter pay a road usage charge.

The fee would be set at 0.6 cents per gallon, meaning an EV that drives 15,000 miles a year would pay $90 in charges, which is half of what a 24 m.p.g. vehicle would pay in gas taxes while driving the same distance.

Washington State EV registration fee
Washington State also wants to implement a gas tax for EVs. In fact, the Washington State Senate recently approved a measure that would require EV owners to pay a $100 registration fee every year.

The state’s existing gas tax amounts to about $200 for someone who drives 12,000 miles a year. So the tax to drive an EV would be about half that of a fuel-powered vehicle.

However, because this tax wouldn’t be based on per-mile usage, it really isn’t fair to EV drivers who drive less than 12,000 miles a year, say some EV advocates

Plug In America lobbies for per-mile tax
Dan Davids, president of Plug-In America, told the Washington Olympian that he would like to see fees for all vehicle owners based on their odometer readings. Owners would report them when they renew their vehicle registrations.

gas-tax-chevy-voltHe said fees or taxes to pay for roads should be based on how much drivers actually use those roads.

“We’re totally on-board with fairness,” Davids told The Olympian, “but we think to just do a Band-Aid for electric vehicles for now doesn’t solve the problem.”

A pay-per-mile gas tax is more complicated than a registration fee such as the one the Washington State Senate recently approved. For instance, it could be complicated to determine how many miles were powered by battery versus gasoline with plug-in hybrids like the Chevy Volt. In addition, pay-per-mile raises potential privacy issues.

Implications of EV tax & alternative solutions to lost revenue
EV drivers have also argued that their vehicles are easier on roads than many larger cars and that EVs have significant environmental benefits such as improved air quality, which reduce government expenditure on health care, and therefore reduce government expenditures in general.

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The government could also impose charges per kilowatt-hour, though motorists of EVs could offset this by using their home charging stations.

According to Eisenstein, the government would have to add a tax of between five and eight cents per kilowatt-hour to make up for the lost revenue from fuel taxes. Of course, a per kWh charge could place the financial advantages of driving an EV in jeopardy.

Competing views on EV taxes
A respondent to Eisenstein’s blog entry argued that although a shift in the U.S. transportation sector to EVs would lower the gas tax revenue, it would increase the sales tax revenue, as Americans would have more disposable income thanks to auto fuel savings.

Another respondent contended that taxing EVs is counter-intuitive in terms of the tax incentives that have been implemented in order to encourage people to buy and drive electric cars. He, and several others, suggested that the government should simply implement a higher gas tax. With a higher gas tax and no more incentives to drive EVs, the market would likely balance the revenue out itself, suggested the writer.

gas-tax-leaf-charge-portsAnother option would be for the government could cut spending to make up for the lost revenue. Still another option: Increasing the gas tax on trucks and shipping companies, which are one of the biggest beneficiaries of a taxpayer funded highway system.

Raise the gas tax?
Another person writing in response to Eisentstein’s blog entry argued that a higher gas tax would not be fair to lower-income individuals, especially those living in areas with little public transportation.

Ultimately, EV advocates point out that the lower fossil fuel consumption that is likely to come as the U.S. transportation sector becomes increasingly electrified and the U.S. energy sector continues to move increasingly away from coal, potentially benefits everybody in society, including lower-income individuals, many of whom tend to live near heavily trafficked and highly polluted roadways. This is because less fossil fuel use leads to better urban air quality, reduced health care costs, a reduced trade deficit and lower defense and foreign policy costs as a result of decreased dependence on foreign oil.

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