Ryan points to this interesting proposal for a combined congestion/vehicle miles traveled ("VMT") tax:
The system might work like this: Vehicles would be fitted with a GPS device to record distance traveled, time and location of travel, and type of vehicle. This data would be sorted into various toll categories, and the device would wirelessly upload the totals to the gas pump when the motorist refueled. The pump would significantly discount the gas tax and add the appropriate road-use fees to the fuel bill. To further protect privacy, only category totals would be communicated to the governing agency via the pump. Tourists and others lacking the transponder would pay the full gas tax. Travel outside the area would not be recorded.
Resources for the Future calculated that the charges under a similar policy for the Washington area would average 9.3 cents per mile. They estimated an 11 percent reduction in VMT, 19 percent less emissions of volatile organic compounds and 17 percent less carbon monoxide. The estimated social welfare benefits (reduced congestion, pollution, accidents, etc.) of this reduction in driving were estimated at the equivalent of $1.1 billion — even before the revenues were disbursed.
This is an elegant solution to the practical problems of collecting a VMT tax and charging for congestion.
A couple of off-the-cuff thoughts:
First, the nominal gasoline tax would have to be set very high in order to prevent drivers from switching to fuel efficient cars merely to avoid the VMT/congestion charges. For example, if the gasoline tax were set below $3.00/per gallon, drivers could lower their effective VMT tax -- and avoid the congestion premium -- merely by switching to vehicles that got 35 mpg. Yes, encouraging fuel efficiency is a good thing, but that's not really the purpose of either a VMT tax or a congestion charge.
Second, such a pricing scheme, counterintuitively, would almost certainly increase the number of SUVs on the road, at least as a percentage of all cars. The reason is that it would reduce the relative cost advantage of smaller, more fuel-efficient cars. If we were to discount gas taxes below current levels but charge everyone the same average per-mile cost, then driving an SUV would suddenly be cheaper, while driving a smaller car would suddenly be more expensive.
Or think of it this way. Suppose the nominal gas tax were set at $3.00/per gallon. Someone driving a car that got 30 mpg would receive no discount by switching to the VMT tax. But the owner of an SUV that got 15 mpg would receive a net discount of ten cents per mile, assuming the average VMT tax worked out to ten cents per mile. The SUV would become a relatively better deal, which would mean more SUVs.
This isn't really a bug of the proposal. Any VMT tax will reduce the relative cost advantage of small cars. That's the point, in a sense. Large cars and small cars both impose externalities that are not fully captured by the gas tax. Small-car drivers should be encouraged to avoid congested roads, too. And we want drivers who are heavy users of roads (local streets in particular) to pay more than drivers who are light users.
I think this would be an interesting experiment, not only to evaluate its efficacy, but to determine its counterintuitive effects.
