Call it the cost of efficiency. Most states have boosted gas taxes or tied them to inflation to recoup billions of dollars of highway fund revenues lost over the past decade to fuel-efficient, hybrid and electric automobiles.
And nobody likes higher taxes.
“State transportation trust funds are in trouble when you have vehicles that use less gas or no gas, but most legislative leaders know gas taxes are not a very popular thing to increase,” said Douglas Shinkle, transportation program director of the non-partisan National Conference of State Legislatures. “So a lot of states are pivoting to vehicle user fees, even though a few states are still raising gas taxes.”
So as more cars become even more fuel-efficient and electric vehicles multiply, how should states generate revenue to build, repair and maintain roads?
Industry watchers are divided on the issue. EV advocates call for even higher gas taxes, while skeptics seek increased EV fees. Others propose replacing per-gallon taxes with fees based on mileage for all types of vehicles.
“The vast majority of road funding tax revenue shortfalls in recent years are directly related to inflation and the fact that the federal government has not raised gas taxes in over 30 years,” said Chis Harto, senior energy policy analyst at Consumer Reports. “Many states have also not raised gas taxes in a long time.”
The U.S. Energy Information Administration reported in January that state gas taxes averaged 32.44 cents per gallon while the federal gas tax, which has not changed since 1993, remained fixed at 18.4 cents.
Consumer Reports estimates that existing and proposed EV taxes will raise just 0.3% of state highway funding next year if EV ownership swells to 11% of the new car market as expected. The advocacy group has argued that EV fees punish owners, forcing them to pay more than drivers of gas-powered cars in most states.
But conservatives contend that raising gas taxes forces the drivers of gas-powered cars to subsidize the Biden administration’s push for EVs, which they blame for adding to highway repair costs.
“Transportation departments are in a bind because EVs are much heavier than gas-powered vehicles and do far more damage to roads and bridges,” said Bonner Cohen, a senior fellow at the National Center for Public Policy Research.
The Biden administration has allocated billions of dollars to finance EV production and charging stations as part of a climate-friendly push to reduce the nation’s reliance on fossil fuels.
Meanwhile, some libertarians support taxing all vehicles per mile as a more equitable means of collecting enough revenue for state transportation funds.
In Virginia, which raised its gas tax to 26.2 cents a gallon last year, lawmakers enacted a Highway Use Fee and Mileage Choice program in 2020. It allows owners of fuel-efficient and electric cars who drive fewer than 11,600 miles per year to pay less than those who drive more.
“To address this problem more efficiently, policymakers should be looking to replace per gallon excise taxes with per mile charges,” said Marc Scribner, a senior transportation policy analyst at the Reason Foundation. “Fuel taxes … worked fine when powertrains across the fleet were very similar, but developing a propulsion-neutral mileage-based user fee should be the priority over the next decade.”
A Reason Foundation study estimates that state gas tax revenues will fall between 30% and 50% by 2050, depending on EV sales.
Fuel taxes made up 38.4% of state transportation budgets in 2022, down from 41.1% in 2018, according to the National Association of State Budget Officers. Projections show states will lose up to $87 billion by 2050 as more drivers go green and emerging car models use less gasoline.
Meanwhile, 33 states and the District of Columbia have enacted fixed gas tax increases or indexed rates to surging road construction costs since 2013, the National Conference of State Legislatures says. Seven states — California, Virginia, Colorado, Missouri, New Jersey, Minnesota and Utah — have made these changes since COVID-19 broke out in 2020.
And the National Conference for State Legislators has noted that most states have capped how much their gas taxes can go up with inflation.
Mr. Shinkle blamed the lion’s share of revenue declines on improved fuel efficiency in conventional and hybrid cars. However, he predicted the growing share of EV owners will cause “a greater impact” in the future.
“EVs are absolutely reducing gas tax revenues,” said Adam Hoffer, director of excise tax policy at the Tax Foundation. “States where EVs have the highest market share [are] where the biggest impact will be.”
Joe Trotter of the American Legislative Exchange Council, a network of conservative state lawmakers and investors, points out that EVs increase road wear by as much as 40% because they are heavier than conventional autos.
“When you add this to the bill taxpayers already pay for subsidizing the purchase of these vehicles as well as the infrastructure upgrades to charge these vehicles, taxpayers are on the hook for a market ballooned by government spending at every level,” said Mr. Trotter, director of ALEC’s task force on energy, environment and agriculture.