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Biden Considering Mileage Tax on All Vehicles

Biden Considering Mileage Tax on All Vehicles

The measure would tax drivers based on the number of miles they travel, not the amount of fuel their vehicles consume.

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President Joe Biden is considering imposing a mileage tax on automobile travel in order to fund his $3 trillion infrastructure plan.

“It holds a lot of promise if we believe in the so-called user-pays principle: the idea of how we pay for – part of – the roads, is that you pay based on what you drive,” Transportation Secretary Pete Buttigieg said in an interview with CNBC.

The measure would tax drivers based on the number of miles they travel, not the amount of fuel their vehicles consume.

Biden Considering Mileage Tax on All Vehicles
Biden has ambitious plans to renew U.S. infrastructure including bridges and highways that might be financed through a mileage tax. (EFE)

President Biden has an ambitious plan to renew the infrastructure of the United States, which would include the renovation and construction of new highways, bridges, and other roads. According to the American Association of Civil Engineers, the United States currently has an infrastructure deficit equivalent to $2 trillion.

The Biden administration intends to finance part of the infrastructure spending through a tax reform that seeks to raise taxes on individuals earning more than $400,000 per year. Among the changes proposed by Biden is an increase in the marginal income tax from 37% to 39.6%; and another increase in the capital gains tax from 20% to 39.6% for individuals with incomes over $1 million.

It appears that even with these changes to the tax code, it would not be enough to fund President Biden’s infrastructure plan, so a mileage tax could significantly increase revenue.

The proliferation of electric vehicles has affected gas tax revenues in the U.S: is the mileage tax a solution?

With the proliferation of electric cars, the U.S. Treasury has lost significant revenue from the gasoline tax, and this revenue looks set to continue to fall as lithium batteries and other gasoline engine substitute technologies become cheaper.

At present, gasoline tax collections appear to have fallen evenly across all states in the Union, with the exception of Georgia, Mississippi, and West Virginia. Over the next 10 years, California is expected to lose approximately $364 million in collections, followed by Florida with just over $200 million.

The Highway Trust Fund, which finances most of the federal government’s highway and public transportation expenditures, is currently insolvent. This fund primarily collects its taxes from gasoline and diesel fuel, but since 2016 the fund has had solvency problems due to lower collections and has had to rely on transfers from the federal government to stay afloat.

mileage tax - gas tax - el american
Some states are considering a tax on the kwh consumed by electric cars to replace the drop in collection due to the gasoline tax. (EFE)

Both the U.S. Chamber of Commerce and various Think Tanks have suggested raising the gasoline tax to solve the revenue gap, however, this solution could prove to be merely palliative as the U.S. vehicle fleet changes its composition from gasoline to electric vehicles.

The consulting firm Deloitte estimates that by 2030, electric vehicle sales will account for 30% of new car sales, and electric vehicles will account for up to 27% of the U.S. vehicle fleet, a trend that could accelerate if fossil fuel regulations and incentives for renewable energy sources are increased.

While a distance-traveled tax may be a tempting alternative, other experts have suggested that a kilowatt-hour tax would be more effective. This tax would be charged when recharging electric vehicles at charging stations; some states, such as Minnesota, have already begun to consider this alternative.

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