A Test-Drive for the 'Prius Tax'

Oregon is trying out a program to charge motorists based on the miles they travel rather than the gas they guzzle. Here’s why it may be a fairer way to pay for roads.

Richard Clement / Reuters

Forget millionaires and billionaires: It’s Prius owners who aren’t paying their fair share.

That’s the heart of the argument that Oregon transportation officials are making to residents as the state prepares to launch a new program that charges some drivers a tax based on how many miles they travel rather than on much gas their cars guzzle. The increased popularity of fuel-efficient cars may be good for the environment and the cause of energy independence, but it means that states like Oregon are collecting less money in the gas taxes that fund the upkeep of roads and bridges. And because hybrid, plug-in, and electric cars consume less fuel (or none at all), it’s the people still driving clunkers that are bearing a bigger burden for infrastructure.

Oregon’s experiment with a vehicle mileage tax—or what it’s calling a “road usage charge”—will be the largest in the nation so far. But with just 5,000 drivers, it’s still modest in size and, for now, entirely voluntary. Beginning July 1, residents can enroll in the program, and if they qualify, they can choose among three devices that will track their mileage and charge them a 1.5 cent fee for each mile they drive on public roads in the state. The gas tax they pay at the pump will be deducted so they don’t get double-taxed.

The program will be closely-watched throughout the country because its success or failure will have implications across several policy areas. In Congress, lawmakers have refused to raise the federal, 18.4 cent-per-gallon gas tax for 22 years, and they’ve been unable to come up with a new way to sustain the nearly-bankrupt Highway Trust Fund. A number of other states are considering pay-per-mile policies, and California will start its own pilot program by next year. While a mileage tax has long been floated as an alternative to the gas tax, it’s never been any more politically popular, and according to a Mason-Dixon poll, a majority of Oregonians oppose the state’s plan.

One major concern, unsurprisingly, is privacy. The easiest way to implement and enforce a mileage tax is by outfitting cars with GPS devices, but people are understandably leery of having the government track where and when they drive anywhere. To get around that fear, Oregon is enlisting private vendors to manage the program, which will report only the top-line data to the state. “All the interaction is between you and the vendor,” said Tom Fuller, spokesman for the state transportation department. And participants can opt to use a simple odometer, rather than a GPS tracker, if they want. (The downside is the odometer won’t be able to determine when they drive out of state, so if they don’t want to pay for those miles, they’ll have to submit additional paperwork.) “We wanted to give people options,” Fuller said.

In a way, the privacy workaround is similar to the one adopted by Congress in the reforms to the NSA surveillance programs that passed this week: The government will cede the responsibility of collecting telephone metadata to the phone companies, who can turn it over only in certain circumstances. Because people already entrust so much of their personal information to private companies, the thinking is they’ll be more comfortable with a third party knowing all about their driving habits. And if Oregon’s experiment works, the GPS technology is key to many more wrinkles that could be added in the future, such as forms of congestion pricing. The state, for example, could charge a higher mileage rate in urban areas like Seattle and Portland, or during rush hours.

The Oregon program also heralds a shift in the treatment of fuel-efficient vehicles. For years, state and federal policies were all about creating incentives to encourage people to buy them, as a way of reducing pollution and the nation’s reliance on oil. But as states are increasingly strapped for cash to pay for roads, the pendulum is swinging the other way, and not only in Oregon. A handful of states have now adopted special fees for electric and alternative-fuel vehicles, including three in 2015 alone, according to the National Conference of State Legislatures. “I see the possibility of two laudable policy objectives coming into conflict,” said Deron Lovaas, a senior adviser at the Natural Resources Defense Council.

In part, the new policies have come about because states remain devoted to the “user pays” model of funding transportation infrastructure. While governments use general tax revenue to pay for things like education and healthcare, they target new taxes and fees for roads to the people who use them: drivers. Conservatives in some states have pushed for moving away from the user-fee model, but their aim is to force governments to tighten spending elsewhere in the budget to prioritize core functions like infrastructure upkeep.

Oregon’s pitch to residents is that introducing a mileage tax is more equitable, since fuel-efficient cars will pay more than they would in gas taxes. And it may even be a modest step toward addressing economic inequality more broadly. Lower-income people who might be unable to afford more expensive hybrids and electric cars would probably pay less in a mileage tax. The 5,000 slots for the pilot program will likely be particularly popular among such drivers. “You can bet people are going to be rushing to those slots because they’re going to save a lot of money,” said Carl Davis, a senior policy analyst at the Institute on Taxation and Economic Policy. He criticized an element of Oregon’s program—designed to raise the same amount of revenue as the gas tax—which reserves 30 percent of the 5,000 slots for cars with low efficiency ratings.

Filling those reserved slots may prove difficult, as owners of hybrid and electric cars may be reluctant to enroll in the voluntary program. Warren Buffett aside, who wants to sign up for a higher tax bill? Fuller is both a spokesman for and a participant in the program. He said he’d pay about $200 more in mileage fees for his Prius than he would in gas taxes. “I’m swallowing a little bit more to help pay for the roads, but I’m still saving gobs of money,” he told me, referring to the car’s higher overall gas mileage.

Environmental advocates have responded cautiously to Oregon’s experiment. They take umbrage at the suggestion that fuel-efficiency is to blame for sagging gas-tax revenues, noting that the levy has been stagnant on the state and federal level for years and that overall driving rates have plateaued. Chris Hagerbaumer, deputy director of the Oregon Environmental Council, told me she agreed that Prius drivers should pay their share for the roads. But she voiced concerns that because the flat mileage fee doesn’t distinguish between light and heavy cars, or between hybrids and gas-guzzlers, it doesn’t “capture the true cost of driving.”

Yet green advocates acknowledge the potential advantages of a mileage tax. If the GPS devices prove workable, they could lead to easier implementation of congestion-pricing policies that environmentalists have long championed. And as Lovaas noted, because a tax on mileage is a more direct fee on road usage than the “proxy” of fuel, it could help change habits and lead to less driving. The fear, however, remains that a poorly-constructed program will start to strip away the incentives for people to pay a little more for that cleaner, smaller car. “It’s good to see experimentation at the state level,” Lovaas said. “What we don’t want to see is a slowdown in the progress toward energy independence.”