Gas Tax Musings

Written by Daniel Jacobovitz on . Posted in Op-Ed

I was a poor college student in 2008 with a co-op job for a local utility for which I had to drive all around southeast Michigan. Keep in mind, this was during a time when the gas prices in the U.S. had spiked to the unthinkable price of $4 per gallon for the first time. Because of this, people started to change their car-buying behaviors, turning in their gas-guzzling SUVs for gas- sipping sedans.

As a student taking economics classes, I had time to play thought experiments while filling up my own gas tank; for example: What would happen if gas prices suddenly snapped back to $2 or less?

My intuition told me that people would continue their newly adapted, less-wasteful habits now that they saw that gas prices could spike at any time. In this completely hypothetical universe in my head, people would take their newfound extra cash and use it to invest in more efficient homes and cars.

Well, not two years later, the energy world was turned on its head, as fracking for natural gas started putting downward pressure on oil prices.

A funny thing happened when crude prices dropped: My intuition was proven wrong.

In what seemed like an almost instantaneous reversal, people started to trade back their new-ish gas-sipping sedans for their wasteful trucks.

Fast forward to 2019. Overall vehicle fuel efficiency is at an all-time high. Some cars, like Battery Electric Vehicles (BEV), don’t directly consume any gas at all. Some examples include the popular Tesla vehicles (models S, 3, X, and later the Y), and GM’s less sexy but more practical Chevy Bolt.

Across the U.S., roads are crumbling. Bridges are in awful, dangerous states of disrepair. Billions of dollars will be required just to keep the roads how they are in Michigan alone.

Between the bleeding population and falling fuel tax revenue, Michigan’s governor, Gretchen Whitmer, is proposing a solution in the form of a gas tax hike. This plan would, in three phases, raise the gas tax by 45 cents per gallon by October 2020.

This approach has problems:

1. It is a regressive tax that disproportionately affects those who can afford the hike least.

2. It can lead to a death spiral, where higher gas prices force people back to getting cars that use even less gas, ultimately reducing revenue.

3. Gas prices are very visible to anyone who drives though a given state. The optics of an area of high gas prices can scare away new businesses from coming to Michigan, and make people think a little harder before moving here. Unlike 2008, when everyone’s gas prices went up, Michigan’s prices will stick out like a sore shining LED thumb.

In 20 states, a different approach has been taken to combat the falling revenue from gasoline. Registration fees have been levied on hybrids and BEVs: One notable example is Oklahoma, which tried a $30 fee for hybrids and a $100 fee for full electric vehicles. However, that law was struck down in 2017 by their State Supreme Court.

Fees on Hybrids seem somewhat more equitable. But, there are problems with this approach too:

1. They don’t consider the amount of wear and tear a given vehicle puts on the road. Some people drive more, to the point that it offsets the cost of the fee, while others will never make up the gain.

2. They disincentivize less wasteful behavior.

Neither revenue structure addresses the fact that today’s electric vehicles tend to be heavier than conventionally powered ones, which also increases road wear.

There is another option I have not seen proposed in the U.S.: A grid-wide EV fee, similar to the Universal Service Fund telecom fee for rural areas. This is a more equitable solution long term. However, this approach is arguably unfair to those who already pay their fair share using the current fee registration system, and don’t use electric vehicles.

I don’t have a perfect solution to the issue of crumbling infrastructure that, ironically, more- efficient vehicles contribute more to. But perhaps with a balanced approach, we can come up with something both smarter and more fair that will work toward everyone’s benefit.

By Daniel Jacobovitz


 

Daniel Jacobovitz lives with his wife Tova and three children in metro Detroit. He graduated with his MBA from Wayne State University, and for almost eight years has been working for DataNet Quality Systems, traveling across the country helping customers solve manufacturing quality issues.