Pay-Per-Mile Tax Will Make Every Road a Toll Road

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If you thought all the talk about taxing the rich meant the government would not be reaching deeper into the pockets of most Americans, then you haven't heard about the pay-per-mile tax.

It hasn't happened yet. But Congress is considering a new way of taxing American drivers that would charge them per mile instead of the current 18.4 cent-per-gallon gasoline tax they pay now.

A new study by the U.S. Government Accountability Office (GAO) says that such a pay-per-mile tax, also known as a vehicle-miles-traveled tax (VMT tax) or ObamaMiles, would cost the average American motorist at least $100 more per year than the current gasoline tax.

The problem the federal government faces is that the annual gasoline tax revenue of $34 billion has fallen far below the $78 billion required to maintain the country's highway system.

For a pay-per-mile tax to generate that kind of revenue, drivers would need to pay an average of 2.2 cents per mile. According to the GAO, that would represent a 153% increase over what motorists pay now.

The increase for each motorist would vary widely, depending on whether you drive a gas guzzler or a hybrid, and how many miles you drive each day. Hybrid owners with long commutes would get hit the hardest.

Meanwhile, commercial trucks would face a 120% increase in driving-based taxes, the GAO said. That would likely push up the prices of all goods transported by truck - virtually everything you buy at a store.

pay per mile tax

Why the Government Wants a Pay-Per Mile Tax

Part of the problem is that the gasoline tax was never indexed for inflation.

But more recently, the popularity of more fuel-efficient vehicles, particularly hybrids, has succeeded in helping to reduce gasoline consumption, resulting in fewer gallons purchased and less tax going to Uncle Sam.

That's why instead of simply raising the federal gasoline tax, Washington is looking into replacing it with a pay-per-mile tax. It gives the government a way to extract tax from folks who own electric vehicles (who buy little or no gasoline) and substantially more tax from hybrid owners.

What's more, several states, such as Nevada and Oregon, are seriously considering pay-per-mile taxes of their own. And Washington state will impose a $100 annual fee on drivers of electric cars starting next month.

Money Morning Chief Investing Strategist Keith Fitz-Gerald, a resident of Oregon, thinks a VMT tax is an ill-conceived government money grab.

"I personally don't like it, considering I drive two fuel-efficient cars in the family - a turbo diesel and a Prius - and I think that [government officials] want their pound of flesh no matter which way they're going to get it to compensate for decades of bad fiscal policy," Fitz-Gerald said on FOX Business Network's "Varney & Co."

Oregon may be the furthest along in its quest for a pay-per-mile tax. Its Department of Transportation is testing several ways to implement a VMT, which could go into effect as early as 2015.

With Oregon and Nevada leading the way, Fitz-Gerald expects other revenue-hungry states to follow suit in the years ahead. And pay-per-mile taxes cooked up at the state level most likely will sit on top of any federal VMT tax - just as with per-gallon gasoline taxes now.

Is a VMT Tax an Invasion of Privacy?

How a pay-per-mile tax would be collected is a dicey issue in itself, beyond the added out-of-pocket costs.

Perhaps the most objectionable idea would put a GPS inside each car to track how many miles it travels. The data would be sent to a central government office, which would then mail out a bill.

That means the government would know the whereabouts of every vehicle in the United States at any given moment. Talk about Big Brother.

"Once the government gets its hands on [this kind of] data, it's not going to back off. In fact, it's only going to get worse," Fitz-Gerald warned.

Other ideas include a pay-at-the-pump system in which a transmitter in the car would send odometer data to a receiver at the gas station so the VMT tax can be added to the cost of the fuel.

While the second idea would not be as invasive, the infrastructure required to carry it out would be very expensive, ultimately defeating its purpose. The GPS idea is both invasive and costly.

"The administrative costs of this program, like many government initiatives, are expected to outstrip additional revenues for years," Fitz-Gerald said.

While no pay-per-mile tax is yet a reality at either the state or federal levels, the need for more highway maintenance revenue means higher taxes are coming one way or another - even if it ends up as a big increase in the current per-gallon tax.

"We are not spending enough to keep up with the maintenance and repairs of roads and bridges," Joshua Schank, president and CEO of the ENO Center for Transportation in Washington, DC, told CNBC. "People don't understand paving roads, adding roads, etc. costs money. That money has to come from somewhere."

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