Beleaguered drivers who think electric cars are the solution to high prices at the pump may have been shocked to learn that the Obama Administration is developing strategies for wringing more tax dollars out of them. On May 5 details were leaked of a “VMT” (vehicle miles traveled) tax. The government doesn’t want to give motorists the ability to escape the hefty taxes already imposed on gasoline.

Any time the government proposes a new tax, Americans should be suspicious. But this particular proposal raises unique red flags, at least for those who favor free markets and individual liberty.

Big Brother Is Watching Your Odometer

The creepiest aspect in the new push for tracking vehicle miles is the idea being batted around in Texas to have the government install GPS tracking in cars that would then compute a driver’s bill the next time he or she refueled.

Although the federal proposal doesn’t explicitly mention GPS tracking, The Hill article says:

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

As in so many other areas, here there is a danger that the government will assume far more new power than is necessary for the ostensible goal—in this case, maintaining adequate funding for highway maintenance.

The Bait and Switch

After the leak, the Obama Administration was quick to distance itself from the proposal. However, as the government becomes increasingly starved for revenue—and assuming electric car sales at some point exceed their currently anemic pace—we can expect a growing drumbeat to get the “freeloaders” who drive on the roads without paying their fair share in gasoline taxes.

We can even expect various economists to favor the VMT tax on grounds of “efficiency.” After all, if the purpose of the current gasoline tax is to raise the revenues needed to pay for road maintenance, then surely it is inefficient to give an implicit subsidy to drivers who buy electric or even hybrid cars, that manage to impose the same wear-and-tear on the roads while consuming far fewer gallons of gasoline.

The problem here is twofold: In general, it would be naïve to expect the government to completely phase out gasoline taxes. Especially at the state level, gasoline taxes may be a significant source of revenue. Even if the introduction of a VMT tax were coupled with reductions in the gasoline tax, the next budget crisis would probably give drivers the worst of both worlds.

A second problem, more specific to this particular tax swap, is that gasoline taxes are supposedly addressing the “negative externality” of carbon dioxide emissions from gasoline-fueled vehicles. In other words, economists who are very concerned with global warming think the tax code should be encouraging motorists to switch to more fuel-efficient (in terms of gasoline consumption) vehicles.

Let’s think for a minute about the implications. If the government then comes along and slaps a tax on drivers for total miles traveled—whether or not their cars use gasoline or electricity—then the advantage of electric cars could be significantly muted, depending on the details of the new tax and motorists’ driving patterns. Rather than agreeing to a reduction or elimination of gasoline taxes, economists worried about global warming might insist that “efficiency” requires a hike in the tax on gasoline, to ensure that new car buyers are still nudged into purchasing electric.

A Genuine Market Solution

As with other thorny issues, the problem here is government involvement. Given that the government at various levels has a virtual monopoly on the highway and road system, it becomes very difficult for policymakers to design a fee structure that is both economically efficient and yet respects the privacy of citizens. In fact, it may be impossible to achieve various goals in this way, because of the nature of government ownership.

In contrast, if the roads were moved into private hands to the extent this were possible, then many of these problems would disappear. We would no longer have a public debate on the best way to finance road repairs, just as we don’t have a public debate on whether software companies should make their money charging for the software or for the service plans.

With free and open competition, different companies can try different pricing strategies, and the most efficient will win out. If a particular company insists on policies that too many people find intrusive of their privacy, that company will go out of business. Most important, in a truly free market it’s not the same organization that would control all the roads, as well as be in charge of the police, fire department, and IRS. It is ironic that so many leftists are wary of “concentrated power” when it comes to media corporations and other big businesses, but not when it comes to the agency that actually controls the army.


As the fiscal situation of the federal and state governments continues to deteriorate, we can expect proposals for a European-style VAT (value added tax) as well as the more recent VMT (vehicle miles traveled) tax. Economists will be able to market the plans as “revenue-neutral” and “efficiency-enhancing,” but those with a sense of history and common sense will know that they should watch their wallet.

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