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Study: Vehicle Mileage Tax Best Option for Long-Term Road Funding
USAgNet - 09/29/2016

A study that forecasts state and federal fuel tax revenues based on different fuel taxation policies found adoption of a vehicle mileage tax would best meet highway construction needs in the long run.

Current taxes on gasoline and diesel, levied at a fixed cents-per-gallon rate, are the primary sources of transportation funding at the state and federal levels. But, due mainly to an increase in fuel economy and fuel tax rates that are not adjusted to inflation, revenue generated by those taxes is increasingly inadequate, according to the study.

Co-authored by Jerome Dumortier, an assistant professor in the School of Public and Environmental Affairs at Indiana University-Purdue University Indianapolis, and John Marron, formerly of the IU Public Policy Institute and currently working with IndyGo, the study, "State and federal fuel taxes: The road ahead for U.S. infrastructure funding," will be published in the January 2017 issue of the journal Transport Policy. The study forecasts state and federal tax revenues that would be generated by:

--- Indexing gasoline and diesel taxes to inflation.

--- Applying state sales taxes to fuel prices in addition to an inflation-adjusted excise tax.

--- Implementing a vehicle mileage tax.

According to the study, fuel tax revenue will decline by up to 50.5 percent between 2015 and 2040 in states that do not adjust fuel taxes to inflation.

The study notes that the federal gasoline tax was set to .184 cents per gallon in 1997. As a result of the increase in the Consumer Price Index since 1997, the purchasing power of the tax rate had declined 31 percent by 2012.

The fuel tax revenue decrease will be smaller, between 3.4 and 16 percent, in states that currently adopt inflation-adjusted fuel taxes.

For states that currently neither adjust for inflation nor impose any sales taxes, charging a vehicle mileage fee would increase tax revenue by 54-101 percent, with a median change of 62 percent by 2040.


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