Craig Farrand, Zondits guest, 11/18/2022
Here’s a question: Gasoline and diesel taxes contribute a large share of the funding for the building and repair of roads and bridges. But EVs don’t use these fuels — so how will their owners pay their fair share of infrastructure costs?
Such is the challenge facing America as it maintains its aging roadways. Currently state gas taxes range from just under 9 cents per gallon in Alaska to 54 cents per gallon in California.
The history of gas taxes dates back to 1919, when Oregon levied the first tax: 1 cent per gallon. Ten years later, every state had a similar tax, with the federal government finally implementing a national tax in 1932 (also 1 cent per gallon). Although the federal tax was first established to offset the rising Depression-era deficit, it remains today.
The federal tax is currently 18.4 cents per gallon of gas and 24.4. cents for diesel — and has not changed since 1993.
The historical problem, of course, is that gas tax revenues — from internal combustion engine (ICE) vehicles — have failed to keep up with the ever-rising costs of infrastructure replacement and repair. As a result, many states have considered major increases in their tax rates to help pay for long-overdue road repairs.
Yet, at the same time, today’s inflationary climate prompted President Biden in June to ask Congress to suspend the federal gas tax — and called on states to do the same — to soften the hit on American pocketbooks.
So, what’s the solution?
“The road tax is built into the price of gas (and) that money goes to support road infrastructure. And EVs don’t fuel up, so electric car drivers don’t contribute in that way,” said Gabe Shenhar, associate director of Consumer Reports’ auto test program. “For now, EVs are a small portion of the market,” he said, “But this is something to consider, as EV sales increase … and they are going to continue to grow.”
Many states are now compensating for lost revenue from EVs by doubling their registration fees. Another approach used in many states has been to increase tolls on roads and bridges. There are also proposals out there to add a tax to public EV charging stations — similar in concept to ICE drivers paying at the pump.
In Michigan, a complex calculation of vehicle cost, weight, and existing gas taxes are used to set EV and plug-in hybrid (PHEV) registration fees. First, the fee is based on the manufacturer’s suggested retail price of the vehicle. Then additional EV/PHEV fees consider the vehicle’s weight and are indexed to the motor vehicle fuel tax: Each 1 cent fuel tax increase above 19 cents increases the EV annual fee by $5 and the PHEV annual fee by $2.50.
The current fees, calculated using a 26.3 cent per gallon gas tax, are:
- $140 additional annual fee for EVs, up to 8,000 pounds ($100 base fee).
- $50 additional annual fee for certain EVs up to 8,000 pounds ($30 base fee).
- $240 additional annual fee for EVs over 8,000 pounds ($200 base fee).
- $120 additional annual fee for certain EVs over 8,000 pounds ($100 base fee).
(These figures represent increases implemented by the state on Jan. 1, 2022.)
To see how your state calculates EV/PHEV fees, read the NCSL.org article Special Fees on Plug-In Hybrid and Electric Vehicles.
Ironically, in trying to be fair about things, these fees mean that some states are actually taxing EV owners at a much higher rate than the average ICE owner, “effectively punishing drivers for choosing a zero-emission alternative to traditional gas-burning vehicles,” according to a Consumers Report study.
This is echoed in a report from the Ecology Center — a non-profit environmental advocacy organization established in 1970 in Ann Arbor, Michigan — which agreed that the result of these new fees “is that PHEVs and EVs pay significantly more in annual transportation-related taxes than comparable gasoline vehicles.”
Indeed, the Center said, “these fees are as much as 30% higher for PHEVs and 67% higher for EVs than comparable ICE vehicles under today’s transportation taxes (and this) disparity will continue to grow if gas taxes are increased beyond current rates.”
But offsetting such “punishment” and “disparity” is the fact that most new EV buyers benefit from a federal tax credit of up to $7,000. And next year, used EV buyers will be eligible for an up-to-$4,000 tax credit — both of which are cornerstones of the 2022 Inflation Reduction Act (IRA). Although the intent of the IRA tax credit is not to offset higher registration fees, but to drive faster adoption of EVs to reduce global warming emissions, it certainly softens the blow for EV owners.
So, how does all of this play into state and federal plans to maintain our roads and bridges?
Most experts agree that the shortfalls in transportation funding — at both the state and national levels — have been due to three primary factors:
- Fuel taxes have not been indexed to price inflation, meaning the real value of fuel taxes and registration fees collected has declined.
- All vehicles are becoming more fuel efficient, meaning drivers purchase less gas and diesel to drive the same or more miles on a state’s roads and bridges.
- The cost of road construction and maintenance have risen substantially in recent decades.
To address the first two points, nearly half of the states now have variable-rate gas taxes, using formulas linked to everything from the price of gas and the Consumer Price Index (CPI) to fuel efficiency and population growth. For example, Indiana links its gas tax rate to the rates of inflation and personal income growth.
To address the second point, eight states — Hawaii, Massachusetts, Minnesota, Tennessee, Utah, Vermont, Virginia, and Washington — considered bills this year that would modify or implement programs to tax drivers of EVs, based on the miles they drive — a vehicle miles-traveled (VMT) tax. Oregon and Utah launched their pilot programs already.
And last year, the U.S. House approved creating a federal pilot program to test a VMT tax that would result in a fee equal to the total amount collected in gas taxes, divided by the miles driven by passenger vehicles. The figure works out to about 0.9 cents per mile, using data from 2019, the most recent available.
The third point is underscored by the fact that the Congressional Budget Office last year estimated that the Federal Highway Fund’s highway and mass transit spending through 2031 would be short $195 billion. And that situation will only get worse, as our roads and bridges continue to age — which resulted in the American Society of Civil Engineers’ issuing a C- in its most recent annual Report Card that grades our infrastructure.
With major goals regarding greenhouse gases and climate change, funding sources for highways will need to be considered a piece of a much larger transportation puzzle. And fairness is an integral part of the discussion. Since a major portion of highway funding comes from income taxes, do public transportation riders and bicyclists pay more than their fair share?
Clearly, it’s complicated. But what can likely be considered a certainty, is that one way or another, EV owners will be taxed to help pay for the roads they travel.
Learn more from these articles:
- Investopedia.com Gas Taxes and What You Need to Know
- BridgeMI.com Michigan gas prices could drop 75 cents per gallon if state, feds freeze taxes
- Michiganada.org Vehicle Transactions in 2022
- Ecocenter.org Paying Their Fair Share: The Problem with Michigan’s EV Road Funding Fees and Potential Solutions
- ConsumerReports.org Without a Gas Tax, How Will EVs Be Charged for Road Use?
- Pewtrusts.org As Electric Vehicles Shrink Gas Tax Revenue, More States May Tax Mileage
- Washingtonpost.com Two states tax some drivers by the mile. Many more want to give it a try.