Monday, February 23, 2009

Logical Disconnect

According to a story in Saturday's Washington Post, the new Secretary of Transportation stepped out of line when he suggested that collecting the road tax based on miles traveled might be preferable to taxing sales of motor fuel. This is a complex issue, and I hope that Secretary LaHood won't let the matter drop, there. More importantly, the curt response from the White House signals a potential logical disconnect at the heart of the new administration's energy and transportation policies, which are aimed squarely at reducing oil imports and greenhouse gas emissions from the transportation sector by making cars much more efficient and shifting large numbers of them to electricity. If these measures succeed, they will surely dry up revenue for the Federal Highway Fund and leave our infrastructure in an even worse state than the "D" grade it recently received from the American Society of Civil Engineers. On the other hand, if the White House believes this funding source remains sound, they implicitly acknowledge that the vehicle efficiency and electrification transition will take a lot longer than Americans have been led to expect.

At first glance, this disconnect seems quite minor in the context of arresting a recession we are constantly told is without precedent in the post-World War II era, and of the equally daunting project of getting the country's greenhouse gas emissions and "oil addiction" under control. After all, the current federal excise tax on gasoline is only 18.4 cents per gallon, and it wouldn't take a very large increase to offset the revenue lost from annual sales declines on the order of the 3% or so the US experienced last year, which equated to about a $1 B drop in tax receipts. The problem, however, is that the energy and environmental policies on which President Obama campaigned envisioned reducing oil consumption not by a few hundred thousand barrels per day, but by millions, with most of that coming out of gasoline demand.

I don't underestimate the difficulties involved in rethinking the present system. We can't tax fuel efficiency without making it less attractive than it already is, when gasoline sells for $2 per gallon. Nor do I think consumers would be as welcoming of new "smart" electricity meters, if they thought they were opening the door to paying a tax on the power used to recharge the plug-in hybrid or electric cars they might hope someday to own. I also got a small taste of the privacy concerns entailed in taxing actual miles driven by means of GPS-based technology, in the form of some very pointed comments when I wrote favorably concerning that option several years ago. But even a purely mileage-based system might not be sufficient to avert a decline in road tax revenues, if last year's reversal of the trend in Vehicle Miles Traveled turns out to have been a true inflection point in the long-term trend.

However difficult it might ultimately be to resolve this emerging challenge, dismissing it out of hand is a mistake. Such a response risks undermining the image of an administration meant to be filled will serious people who carefully think through all the consequences of their actions. Whatever the White House thought about Secretary LaHood's comments about the road tax, it would have been far better to have acknowledged that this is something that must eventually be approached with prudence and creativity. There is still time for that, even if this issue must wait on the back burner while the nation deals with bigger, more urgent problems. If the response to low gas prices that I highlighted in last Thursday's posting persists, federal highway tax receipts might actually rise this year, though I wouldn't bank on that trend lasting long enough to negate Mr. LaHood's worries.

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