Introduce a Vehicle Miles Traveled Tax

Existing transportation taxes poorly approximate the costs different cars impose on roads. Electric vehicles do not pay the gas tax, while freight traffic is substantially underpriced relative to the wear and tear it creates.

This option would repeal all federal taxes associated with the Highway Trust Fund (gas and diesel taxes, highway use fee, truck sales, and tire taxes) and replaces them with a tax on each mile driven that varies by vehicle weight per axle to approximate maintenance costs imposed, adjusted for inflation. This would better align with a user-pays model. Under this option, the average passenger vehicle would pay approximately 0.9 cents per mile, while the average freight vehicle would pay approximately 10.6 cents per mile. This option would close the gap between highway spending and road transportation revenue. Like other excise taxes, a vehicle miles traveled tax would reduce real, after-tax wages, hours worked, and output.

On a conventional basis, this option would decrease the primary deficit by $157.1 billion over the budget window. Long-run GDP and GNP would fall by less than 0.05 percent. On a dynamic basis, the primary deficit would decrease by $133.7 billion from 2027 through 2036, $23.4 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 174.8 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of 0.1 percent. The top quintile of taxpayers would experience a 0.1 percent decrease, as would the bottom quintile. On a long-run dynamic basis, taxpayers would see a 0.1 percent decrease on average.