The Gas Tax System is Broken; Are Electric Cars At Fault?

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Old Gas Pumps

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In the face of plummeting gas-tax revenues, both state and Federal, electric cars seem to be emerging as a culprit and a target.

Before we discuss how to fix this ... first, a little Gas Tax 101.

The Revenue Act of 1932 under the Hoover administration instituted a Federal 'excise' tax on gasoline of 1 cent per gallon: the first Federal gas tax.

Eighty-one years later, that tax is now 18.4 cents per gallon--and has remained so since 1997.

In my home state of Maine, the state's additional excise tax on gasoline is 31.5 cents, bringing the total tax to 49.9 cents per gallon. (The national average is 45.8 cents.)

To help put this in perspective, the average national sales tax is 5.6 percent, whereas the national excise tax on gas at  the current average price per gallon is about 13 percent.

Based on an estimated 150 billion gallons of gasoline sold each year in the U.S. at an average tax of 46 cents a gallon, that works out to be combined state and Federal gas-tax revenue of roughly $69 billion.

As well as the Federal income-tax credit for the purchase of a plug-in electric car ($2,500 to $7,500), 20 states at last count currently offer some form of tax relief as incentive for the purchase or use of electric vehicles.

Not a drop of gas

I've now driven an electric car for 9,000 miles and have not bought a drop of gas, nor paid a penny in gas tax. 

Yes, I give back to the environment by driving electric, but I take money from the taxman--which was not my intention in buying the car. It can be considered tax avoidance, which I view as smart personal finance.

Please note that is not tax evasion, which Uncle Sam frowns upon.  As you know, electric cars are green, but would tax policymakers be more apt to say gangrene?

Let's face it: The gas tax collection system is failing--but not because of the tiny number of plug-in cars entering our roads.

Years of Federally mandated increases in fuel-efficiency standards have eaten away at gas-tax revenue. What started as a scratch has now become a festering wound. 

Author Marc Lausier and his 2012 Nissan Leaf

Author Marc Lausier and his 2012 Nissan Leaf

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When hybrid vehicles entered the scene, more than a decade ago, the Federal Highway Administration should have addressed the issue.

Unfortunately, as is commonly the case, policy and law did not keep pace with technology.  Governments move slowly, for the most part--consider the sequester debacle.

The American Association of State Highway Officials projects that there will be an average shortfall of $14.7 billion a year in the funds needed by the Highway Trust Fund. 

This is exacerbated by the fact that not all the money collected goes to the roads, since there are other hands in the cookie jar.

The wrong bandwagon?

Michigan and other states have now jumped on the 'tax electric cars bandwagon'.

But this is a Bandaid approach, and it will lead to a fragmented system of reaping highway-repair revenue.  While on the one hand, 20 states give tax breaks for electric-car use, they may begin to recoup those funds on the other hand.



What is needed at this point is a top-to-bottom examination of how highways are funded, and then a standardized and equitable system so that drivers pay their fair share regardless of the fuel they use.

That system may well be a per-mile fee, though how it would be administered is currently the subject of much heated debate: annual odometer readings? over-the-air recording of a car's mileage (but not its routes)?

Still, I'd suggest that electric cars may be stimulating necessary changes in the way highway taxes are levied--and hence are doing more good than harm.

Will they be the antibiotic that cures this disease?

Leave us your thoughts in the Comments below.

Marc Lausier is a retired pharmacist living in the coastal town of Scarborough, Maine.  He is an electric-car advocate and the owner of the first Nissan Leaf sold in his state. He first wrote for Green Car Reports about his car's carbon-dioxide footprint


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Comments (36)
  1. Gas tax is an "use tax", similar to sales tax. So, the less a person uses it, the less tax it will generate. There is NOTHING WRONG with eliminating your share of the tax by using ZERO gallons. The problem is the "intention" of the gas tax. B/c taxing miles driven would be far more complex back in the day than taxing gasoline, so it was done that way since gas tax is designed to compensate for public roads.

    I think they should change it to "tire tax". B/c regardless of what you drive, you need tires. You drive more miles, more tire wear. You drive faster, higher speed or heavier car, it will wear out the road faster. So, apply the tax to the tires...

  2. We need a new solution! By the way, do you drive an electric car?

  3. Yes.

  4. BTW, what other car do you have beside your Leaf?

  5. The LEAF is my only car. If I decide to take a long trip where charging is a problem, I'd probably rent a hybrid.

  6. Great idea. Sounds like an equitable solution to me!

  7. That's an interesting idea, but I would be worried about people driving with bald tires to avoid the tax. Also, what happens when someone sells a car just before the tires wear out? Does the new buyer pay the tax for the previous owner, or do we now need the inspector to state a "tax value" of the tires and deduct that from the sale price?

    In my opinion, it would be nicer if everyone could just agree on annual odometer readings, then have an arbitration system to make sure out-of-state commuters don't have an adverse impact without logging too many vehicle routes.

  8. Well, you are talking about ways to cheat, there are already ways to cheat today on gas tax.

    Tire tax can be applied on brand new tires. If you sell a car with brand new tires, then your car should worth more b/c the previous owner prepaid the tax. No different from how the current registration fee works. Also, if you drive bald tires, it is a great way for cops to make extra revenue for the state. Currently, it is already a fine.

    People can "cheat" currently by buying diesels designated for farm use. It has a dye in it to identify that it is farm diesel. It is far cheaper and you aren't suppose to use it on cars/trucks. But people do anyway unless they can caught. Then it is a very expensive fine...

  9. I like the idea and think that we should simplify taxation as often as possible. Your idea has the merit of being very simple to collect, which reduces administrative overhead and waste, as well as saving everybody time. That said, if a set of four tires last 40,000 miles, and if your car averages 30mpg, and if the average gas tax is 46 cents per gallon, then the equivalent tire tax would be $613 (40000 / 30 * .46). I realize it's the same net cost, but many people would have a difficult time with a one-time fee that large.

  10. I really like the idea of the "tire tax." I think it's relatively simple and straightforward - at least compared to other ideas I've heard. I agree with John Hansen that customers will likely balk at the idea of a 100%+ tax on tires paid in a lump sum.

    The article mentioned "other hands in the cookie jar." I wonder how much the cost would go down if we moved all non-vehicle related expenses to another tax (such as income tax). It might not be seen as a tax increase by the public, since it's just moving taxes around. Also why should someone who drives a lot be required to pay more of a non-vehicle releated expense anyway.

  11. If the tire tax is still too high after that, perhaps the government could offer a low interest loan to spread out the cost of the tax *and* the tires over a longer period (improving cash flow for consumers).

    I completely agree that we should also attempt to simplify the tax code in the process.

  12. I think it would be best to simplify our tax code and apply the same standard sales tax to gasoline as you pay for other products and then shift the rest of the cost to income or property taxes. That way instead of one additional type of tax we have one fewer. In terms of fairness, even though some of us drive more or less than others, we all indirectly depend on our national transportation infrastructure all the time. Heck, the interstate system was envisioned partly as a defense exenditure.

  13. There are more comments in this thread
  14. i think they need to break it up, Have a vehicle tax, per vehicle, then a mileage tax, adjusted by weight and then a gas tax. The real problem is people are buying high mileage cars, the fleet economy is shooting up and people are
    stopping driving high mileage cars or are car pooling more. Annual vehicle miles is headed down and the fleet efficiency is headed up, that's an iron vise for gas tax revenues.

  15. A large part of the inefficiency of our government is due to overly complex rules and regulations. We should not turn one tax into three different taxes. That would add millions to administrative overhead and headache.

  16. A vehicles "value", "weight", "rated power" and "miles driven" have been common & fair methods to collect fees over past century.

    Why are politicians now taxing vehicles with electric motors differently? Seems odd when there's no difference in taxes between gas & electric dryer, or between gas & electric mower. Further why is a Plugin-Hybrid, Extended Range EV, or Fuelcell EV taxed different than a battery-only EV?

    Another case in point from Iowa ($25), following Washington state ($100):

    Seems silly to add fees to few vehicles as a larger majority use less gas each year, leaving funding gap. (national avg. is 25 MPG now, set to increase to 54 MPG in 2025)

  17. Elements (weather) aside, road deterioration is primarily caused by vehicle weight. Thus, a tax based primarily upon weight x miles driven would be equitable. Rated power, motive source, vehicle value, and ICE displacement are irrelevant. Mileage data is already collected by insurance companies, vehicle inspections, and every time a vehicle is in the shop, so simply recording vehicle mileage at the time of registration would be trivial and readily verifiable/enforcable. Some of us think that a vehicle's emissions (not the fuel source, which should have its own carbon tax) should be factored into this equation.

  18. What's ironic is that in the past 10 years, gas prices on average in the US jumped over 250%

    The gov't charged a fixed fee per gallon whereas they should have charged a % fee based on the price of gas.

    At the same time oil companies get $billions$ per year in subsidies while enjoying record profits. A better solution would be to redirect the subsidies for road improvements.

  19. True, in 1997 (when gas tax fee last raised) the gas tax accounted for about %12 of the price of gas (prices from $1.30 to $1.80 a gallon). Now with gas running around $3.75 a gallon, the government only collects about 5% of the cost of gas. Blame EVs? Come on, hybrids and higher CAFE standards are to blame, with gas consumption actually reducing, this is going to be a continuing concern. So is charging EVs a fee going to make up for that difference? Absolutely not. Road tax should charge for use, either tolls (as many states do) or on tab renewals you report your mileage.

  20. The same thing can be said about many other things...

    For example, why should a 80lbs person pay for the same price as a 240lb person on an airplane? The extra weight is costing the airline a lot more. They should be charging based on weight...

  21. Samoan Airlines does:

  22. Hmm lol ok Maybe More Gas Tax lol = more electric Cars = More Gas Tax GET IT

  23. yearly Roadtax by weight and co2 exhausts + toll-roads

  24. A fair scheme to tax road vehicles would be an equation considering both, distance covered per annum and total weight of the vehicle. The heavier the vehicle, the more wear and tear it causes on the roads travelled.

  25. this is not really news. name one system that is completely self supported by the taxes it collects or fees it charges? there might be a few but I don't know them.

    what we have a is a system that is broken. now we need to make the decision of whether its worth keeping (yes) and how to pay for it. obviously user supported fees should be the primary funding and EVs use the roads so they should pay their fair share but in conjunction with a rise in the gas tax. what is going on here is that BOTH are not carrying their weight

  26. but to answer the question; the gas tax system works, it just needs to keep up with the times. either set a percentage of the gas price for taxes or raise the tax. what else in this World has not risen in cost in the past 17 years? I mean, how much "brain power" does it take to figure this out?

    on the EV question? In WA, there have been several reports stating it will take decades for WA state to recover the cost of passing the EV surcharge of $100 per annum ONLY if EV adoption more than doubles over the next several years

  27. I agree. I think EV tax is nothing more than political scheme. For the current sales level, it will barely make a difference. They could easily raise the gallon tax by $0.01 and cover the difference....

  28. I have thought about the solution here a lot, since I own an electric car, myself, and have been alarmed by the number of States that have enacted an "electric/hybrid tax" solely on these cars ... and the list is growing longer. It is retrogressive, and simply is not fair. I live in California, so I don't imagine that they will do it here. Still, I think the solution would be to enact an across-the-board tax on everyone, either based on their miles driven, or simply a flat tax on everyone regardless of the miles. The latter would then be a further incentive to drive a non-polluting electric car, removing more of the gas-guzzling cars off of the road. I prefer the last one, for the reasons stated.

  29. I think they should just set the gas tax equal to expected highway fund expenditures. I do not buy highly efficient cars because of the environment, I buy efficient cars because we import over half of our oil. Higher gas prices would incentivize people to buy more efficient vehicles and increase our energy independence. Those that want to purchase a hummer still have the option, they just have to pay more gas tax.

  30. Why not just increase the tax of gasoline futher, compaird to europe your gas tax is tinny.
    here in switzerland we have a gas tax to get pepole to pulute less, and a road tax a yearly sticker you put in the windshild that you buy at ant gas statione for some 50 dollars.
    Over here Tax on gas is not for the roads, its to bring gas usage down

  31. Kalle,
    Good to hear from our European friends. I see the you pay an average 1.7CHF/liter ($6.82/gal U.S.). If we paid this much for gas you can be assured there would be far more electric cars on the road. We need to find a solution to our gas tax issue. Thanks for you comment.

  32. We should just raise the gas tax to cover what it needs to. We need to provide more incentives to not use gasoline.

  33. Ic some of you get it more gas tax no tax on evs not now not let

  34. Forget the tire idea, too many variables, What will happen is a wireless GPS type system that will be installed in the car. Each month, as you pass a state WiFi zone, the number of miles driven will be calibrated and the result will be sent to the tax collector, and he will send you a bill based on the miles driven. This is already being studied at the U of Mich.

  35. What is broken is our political system of mismanaging tax funds. One thousand electric cars paying $100 a year generates $100,000.00 And how much is the cost per mile to repair an existing road? The math just does not work either on a 30 MPG car driven 12,000 miles either. This is just not enough money specially when road taxes go for other purposes. It is always the management and not the funds. How many people go broke making $100,000 income per year?

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