Bailout

The problems with a nationwide VMT tax

By Felix Salmon

Andrew Samwick calls a tax on vehicle miles travelled (VMTs) “one of the most ridiculous policy proposals I’ve read in a while”, and Ryan Avent responds with a defense of the idea. The weird thing, here, is that they’re both right. Samwick agrees with Avent that congestion charges — essentially VMT taxes which vary according to the route you take and the time of day that you drive — are “worthwhile policy measures”. And it’s pretty clear that if we’re going to have congestion charges, we’re going to need to implement some kind of VMT-tax technology. (I’m a fan of Skymeter, myself.)

So yes, a flat nationwide VMT tax makes little sense — but the fact is that once VMT-tax technology was introduced, it would have lots of knobs and dials allowing it to be anything but flat, and to charge much more for VMTs in central business districts during rush hour than for VMTs in the middle of Wisconsin on a Sunday afternoon.

The problem is in the implementation: it’s hard to have a compulsory VMT tax, since that involves attaching some kind of meter to every American’s car, and Americans are not going respond well to that idea. Hell, even New York cabbies went on strike to protest GPS devices being put in their vehicles to track their every movement.

A single city can implement VMT metering by attaching carrots as well as sticks: cheaper and more convenient on-street parking, say, for metered vehicles, and lower insurance, based on miles travelled rather than a flat monthly fee. And people who still opt out of the scheme can just be charged very large sums manually for entering the city — something eminently doable in Manhattan, for instance, simply by installing a couple of tolls on East River bridges. But that kind of thing doesn’t scale well to the nation as a whole, and there really is something quite creepily Big Brotherish about trying to track every single vehicle in America.

So although I’m a fan of a cap-and-trade system over a carbon tax, and although in theory a VMT tax is to the gas tax as cap and trade is to a carbon tax, I can’t get very excited about the idea of a nationwide VMT tax. The difficulty of implementing it is just too great, and the marginal upside is too small. Let’s start with a couple of cities, and work out from there. Starting nationwide is far too ambitious.

Full post as published by Macroprudential on February 11, 2010 (boomark / email).