Tuesday, April 26, 2011

Oregon tax on electric cars

So Oregon has decided that it's unfair for drivers of electric cars to avoid paying road use taxes and is proposing a special tax on electric cars to make up for this "inequity".  This post will discuss why this is stupid, and why Oregon should resist the urge to implement this tax.

The federal government and, as far as I know, all of the states, impose excise taxes on gasoline.  While in most cases these taxes are treated as general revenue and can be used for any purpose, there is the notion that they should be used to pay for road maintenance and construction, on the idea that the more one uses the roads the more one should pay for their upkeep, and gasoline usage is a fairly good proxy for road usage.  Diesel fuel is taxed similarly, but one can also buy "exempt" diesel for use in off-road applications, such as running farm equipment or generators.  The current federal gas tax is 18.4 cents per gallon; state gas taxes vary, but in Oregon (the state in question) is 30 cents a gallon.  Thus, a car that gets 30 miles per gallon (which is slightly better than the 27.5 mpg fleet average required by CAFE) will pay one cent per mile in Oregon gas tax.  The proposed tax on electric vehicles is one to two cents per mile, which suggests that Oregon believes that electric car owners should pay more than their fair share for road usage, itself an interesting statement.

The proposal, however, is misguided for at least four reasons.  First, all-electric vehicles are, at this time, almost universally passenger cars, and usually small ones at that.  Passengers cars present almost no wear and tear on roads; virtually all wear and tear on roads is the result of usage by trucks, or the result of weather (or other natural processes like earthquakes or landslides).  So while cars represent the majority of users they do not cause the majority of wear and tear, and thus upkeep; that burden therefore ought to fall more heavily on larger vehicle operators.  Diesel taxes are sometimes, but not universally, higher than gas taxes, reflecting the fact that most heavy vehicles run on diesel fuel; in Oregon diesel is also taxed at 30 cents per gallon.  In any case, there is no reason why the tax burden on electric passenger cars should be greater than that of gasoline-powered passenger car of similar weight and performance.

Second, there are solid public policy reasons to abate road-use taxes on electric vehicles.  Electric vehicles do not produce point pollution, and in the Pacific Northwest especially where a great deal of the electricity is produced by hydroelectric power, produce no pollution at all.  The reduction in point pollution production is itself sufficient grounds to give a tax abatement to operators of such vehicles.  Certainly imposing a tax burden equal to or greater than that imposed by pollution-generating gasoline-powered vehicles would be nonsensical, because it would tend to discourage consumers from making a choice that we would prefer them to make.

Third, the amount of tax that would be collected would not exceed the cost of collecting the tax.  The typical electric vehicle that would be subjected to this tax has a range of about 80 miles.  A vehicle driven 80 miles each day, five days a week, fifty weeks a year would travel around 20,000 miles, and be subject to a tax of between $120 and $400 a year (depending on tax rate).  Most vehicles will be driven far less, with correspondingly lower tax revenue.  Oregon estimates that there will be approximately 5000 vehicles subject to the tax in 2014 when it takes effect, generating probably somewhere between $200,000 and $500,000 in annual revenue.  That means that the Oregon Department of Revenue has to implement this tax with fewer than ten full-time equivalents, or it will end up being revenue-negative.

Fourth, a miles-driven basis for taxation raises issues for taxing out-of-state vehicles operated in Oregon and Oregon-titled vehicles outside of Oregon.  The use of gasoline taxes as a proxy for road usage relies in part on the fact that in most cases, motor vehicle fuel is used fairly proximal to its point of purchase.  So while there is a discrepancy between state of purchase and state of use, in most cases it probably evens out in the end (although there are lots of exceptions, especially for communities near state lines where one state has a significantly lower tax rate than the other).  However, if some road users are taxed by proxy and others for actual usage, that creates an inequitable basis for taxation.  Arguably, if Oregon is going to tax electric vehicle owners for miles driven in Oregon, then it needs to do so as well for gasoline-powered vehicle owners as well.  This then generates additional problems of crediting vehicle owners for miles driven outside of Oregon without being overly intrusive on owner privacy (the pilot program from some years ago used GPS technology, but that amounts to tracking the movements of anyone who owns a vehicle subject to this tax, and that just won't fly), and also on taxing out of state vehicles that are operated within Oregon.  Finally, plugin hybrids risk double taxation under this plan, since they might well pay both a miles-driven tax and a gasoline excise tax.  Replacing one tax inequity with several new ones is not an improvement.  In this case it switches the burden of the inequity from an option disfavored in public policy (polluting) to one favored in public policy (not polluting), which is just stupid.

Fundamentally, I think Oregon's action in this regard is misguided.  I'm sure they're seeing declining fuel tax revenues; the recession has resulted in people driving far less, and virtually every state has reported declining fuel tax revenues as a result.  Also, I imagine the oil companies have been astroturfing the notion that it's unfair for electric vehicles (which they view as a huge threat) to be allowed to avoid taxation like this, and I'm sure the idea to tax electric vehicles has been driven at least in part by their public policy management agencies.  Finally, the idea of implementing a special tax on a consumer choice that we bend over backwards elsewhere in public policy to encourage is just moronic.  I just don't see the point of creating an entirely novel tax infrastructure to collect what would be at most a half million dollars of revenue on an activity that likely saves the state at least that much in costs elsewhere anyway.  In fact, for me the fact that the revenue collected is not likely to exceed the cost of collecting it leads me to believe that the real purpose of this tax is to discourage people from owning electric vehicles, and that tells me that the real reason for the tax is to protect the oil and gas industry in Oregon.  What's the real motivation here?  (Keep in mind that Oregon is also one of only two states that prohibits self-serve gasoline stations.)

No, Oregon, this is a dumb idea.  Don't put barriers in the way of progress, just because the oil companies want you to.  Say no to HB 2328.