Trump Might Propose a Mileage Tax to Fund Infrastructure Projects

The Trump Administration highlighted Oregon’s mileage tax initiative as an example of the kinds of fees that could be used to pay for improving roads, highways, and other public infrastructure—a signal that the president endorses an idea that many fellow Republicans oppose.

The annual Economic Report of the President released Wednesday suggests lawmakers consider four actions to speed up and pay for infrastructure improvements throughout the U.S. The report follows Trump’s infrastructure plan unveiled Feb. 12 that calls for investing $200 billion in federal funds in infrastructure projects. Trump says the plan would create $1.5 trillion in investments over the next decade. The federal government would only invest a maximum of 20% in these projects, leaving it to the states to find other sources of revenue.

The economic report recommends streamlining regulatory hurdles, pursuing public-private partnerships, and improving project selection through competitive grant programs. But the interesting action item is the seeming endorsement for user charges. The report singles out Oregon as a pioneer in transportation funding, noting it was the first state to levy an excise tax on gasoline in 1919.

“Innovations such as user fees for vehicle miles traveled—as are being piloted in Oregon, for example—and highway tolls that vary with congestion can increase efficiency and raise needed revenues to pay for infrastructure improvements and additions to capacity,” Trump’s economic report says.

Oregon’s mileage tax initiative is a pilot program that replaces its excise taxes on fuel to fund its roads and highways. The program, called OReGO, charges volunteer participants a mileage fee of 1.7 cents per miles for travel on public roads inside the state. It provides rebates or credits for state fuel taxes paid.

The program is still small. However, Trump’s report notes it “offers tangible evidence that a tax on vehicle miles traveled (VMT) is a promising alternative to relying on fuel taxes.”

User charges are typically set by the state or local governments and are designed to capture dollars from people who directly benefit from public roads, water facilities, and other types of infrastructure, the report says. These user charges “will encourage efficiency in use, provide signals from consumers and to suppliers about the value of future investments, and generate revenues.”

Trump’s report notes that fuel taxes have acted as “imperfect user fees” and are now under pressure from rising fuel efficiency and the use of electric vehicles. For instance, Oregon’s state excise tax on gasoline is not indexed to inflation—similar to other states. Tax revenues from nominal motor fuels sales have risen by 65.8% since 1993. Once you adjust for inflation, tax revenues have fallen by more than 30% during this period, the report says. To make up for the shortfall the state increased its tax on gas from 24 cents in 1993 to 30 cents per gallon in 2011. Legislation passed in 2017 will increase the excise tax by 4 cents per gallon this year.

The economic report’s negative stance on gasoline taxes seems to contrast to Trump’s own remarks to lawmakers earlier this month when he indicated he would support a 25-cent increase in the federal gasoline tax to pay for his plan to upgrade U.S. public infrastructure.

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