New Tax Would Penalize Electric Cars for Not Using Gas

Last Updated Mar 29, 2011 9:19 AM EDT

Here's another entry for the no-good-deed-goes-unpunished file: Environmentally conscious drivers may soon get hit with a charge to make up for the gas that they're not using.

Aiming to cut use of gasoline and dependence on foreign oil, the federal government gives you a $7,500 tax credit if you buy a new electric car. Various states add their own tax credits ranging up to $5,000. So far, so good. But now state and federal proposals would penalize electric cars for not paying gasoline tax, by imposing a tax on the miles they travel. And here's a hackle-raising detail: to make it work, states would have to track your mileage with a mandatory GPS device on the car.

The cost of highway and other transportation expenses are (partially) offset by gasoline taxes -- an 18.4 cents per gallon federal levy and widely varying rates at the state level. (Check the rate in your state). The federal tax, unchanged since 1993, already has fallen short of financing the federal highway trust fund, with $19. 5 billion transferred from general revenues this year. And revenues may continue to decline: Federal regulations require vehicles to average 35.5 mpg by 2016, which has already cut into gas tax revenue. (See What You'll Be Driving in 2016).

Armed with a report released last week by the Congressional Budget Office, Senate Budget Committee head Kent Conrad (D-N.D.) has raised the possibility of a "vehicle miles traveled" tax. In fact, legislation already is pending in three states -- Oregon, Texas and Washington -- that would impose some form of VMT tax. So owners of electric cars such as the Nissan Leaf (right) and Chevrolet Volt (below), who now pay no or very little gas tax, would get slammed by a VMT. Same with owners of high-mileage hybrids and low-emission cars powered by natural gas, which is generally not taxed now as a motor fuel.

The CBO report says taxing miles traveled is a more accurate way than gas taxes to assure motorists pay their fair share for road repairs. And new GPS technology makes it feasible -- though not immediately. Such a GPS device would track mileage, allowing drivers to be billed for the tax. In an advanced system, readers on gas pumps would measure mileage since the last fill-up and impose the tax immediately in your gas bill. But the CBO says the cost would be prohibitive to retrofit cars and trucks now on the road with the GPS device, though it could be mandated in new cars. Interim low-tech measures might involve having your odometer mileage certified at an annual safety inspection.

The cost and privacy concerns that the government is tracking your vehicle may help derail this idea. But it's not impossible:
  • Some motorists already allow tracking to save on insurance. In a growing trend, insurance companies will cut premiums sharply for car owners willing to attach electronic devices to their vehicls to measure the distance they drive and ensure that they are not aggressive drivers. Progressive Insurance, which pioneered the concept, already has 100,000 volunteers. (See Auto Insurance: Cut Your Bill by Installing this Device).
  • A pilot study shows potential acceptance. University of Iowa researchers tracked 2,500 motorists for eight months with GPS technology that recorded their mileage for potential tax bills. When the study began, 80% of participants said they were opposed to a vehicle miles traveled tax. But by the end, when they had satisfied themselves that the device reported only their mileage traveled and not their locations, 70% said they favored such a tax.
  • Electric vehicles are not likely to rack up big mileage numbers. Cars such as the Nissan Leaf, which never uses gas, and the Chevrolet Volt, which has a backup gas generator, have limited range. They are likely to be used mostly as commuter cars, not long-distance travelers.
Despite those positive signs, however, the knee-jerk reaction against any new tax in today's politics will probably keep this one from happening in the immediate future.

Photos courtesy of the manufacturers

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    Jerry Edgerton, author of Car Shopping Made Easy, has been covering the car beat since Detroit companies dominated the U.S. market. The former car columnist for Money magazine and Washington correspondent for Business Week, Edgerton specializes in finding the best deals on wheels and offering advice on making your car last.

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