Paving the Way Forward: Reforming Highway Funding in the Reconciliation Package 138

 in News / Tax Guide  tagged Commercial / Deficit / Equity / EVs / Fees / Fund / funding / Gas / Highways / Infrastructure / Maintenance / policy / Reconciliation / Roads / Sustainability / Tax / Transportation / Trust / Vehicles / VMT by (updated 180 days ago)

The recent House reconciliation bill includes a new fee on electric vehicles (EVs) intended to bolster the struggling Highway Trust Fund (HTF). While this move aims to address the HTF’s persistent deficits, it only scratches the surface of a much larger and more complex issue. This article delves into the challenges facing highway funding, evaluates the proposed EV fee, and explores more equitable and sustainable solutions for maintaining our nation’s critical infrastructure.

The Crumbling Foundation: Understanding Highway Funding Challenges

At its core, highway funding operates on a user-pays principle: those who use the roads should contribute to their upkeep. However, the current system is plagued by two significant problems: insufficient revenue and a misalignment between user fees and the actual costs imposed on infrastructure.

The HTF’s Growing Deficit

The primary source of HTF revenue, the federal gas tax, has remained unchanged since 1993. In real terms, its value has plummeted by over 50 percent. This decline, coupled with increased fuel efficiency and the rapid adoption of EVs, has severely eroded the gas tax base. Projections indicate a grim future, with the HTF’s highway account alone facing a cumulative deficit of nearly $287 billion from 2026 to 2035. This unsustainable trajectory threatens the future of road maintenance and construction.

Misaligned Costs and Contributions

While the gas tax broadly aligns payments with miles driven, and heavier, less fuel-efficient vehicles generally pay more, the system is far from perfect. Road damage increases disproportionately with vehicle weight; a vehicle twice as heavy inflicts more than double the maintenance costs. Despite higher diesel tax rates, annual fees, and excise taxes on tires, heavy commercial traffic remains significantly undertaxed relative to the wear and tear it imposes on our roadways.

The Ideal Road Map: A Vehicle Miles Traveled (VMT) Tax

To truly fix both the revenue shortfall and the cost-fee misalignment, a Vehicle Miles Traveled (VMT) tax, adjusted for vehicle weight per axle, emerges as the most equitable and sustainable solution.

How a VMT Tax Works

A VMT tax would charge drivers based on the actual number of miles they travel, with rates varying according to vehicle weight. This ensures that those who drive more, or operate heavier vehicles, contribute proportionally more to road maintenance. While a continuously scaling rate based on weight per axle would be ideal, a categorical approach (e.g., passenger cars, commercial trucks) can also be effective for revenue estimation and implementation.

Hypothetical Differentiated Federal VMT Regime (Annual Revenue Estimate)

Vehicle Class Miles Traveled (2022, Millions) Cents per Mile Revenue (Millions)
Passenger Cars 2,822,664 1.1 $31,049
Motorcycles 23,765 0.5 $119
Buses 18,490 4.0 $740
Commercial Trucks 331,272 6.3 $20,870
Total 3,196,191 1.65 (average) $52,778

Note: This table is illustrative and based on 2022 data.

The House Proposal: A Step, But Not the Solution

The House reconciliation package includes an annual fee for EVs, initially set at $200, later increased to $250, with a $100 annual fee for hybrids. An initial proposal for a $20 fee for non-EV or hybrid vehicles was ultimately removed.

Revenue Generation and Limitations

This EV fee will undeniably raise revenue, estimated at $111 billion gross ($81.9 billion net) from 2026-2035 under initial assumptions. However, the overall reconciliation bill’s decision to nix EV credits and eliminate EPA tailpipe regulations could reduce EV adoption, consequently lowering the projected revenue to $78.5 billion gross ($57.8 billion net).

Disproportionate Burden and Flawed Design

The primary flaw of this proposal lies in its disproportionate burden on EV drivers. With the average light-duty vehicle driver currently paying around $100 annually in federal gas taxes, a $250 flat annual fee for EVs represents a significant overcorrection. A flat fee also fails to account for miles driven; an EV driver traveling 5,000 miles annually would pay an exorbitant 5 cents per mile, while an internal combustion engine vehicle (ICEV) driver getting 25 miles per gallon would pay less than a cent per mile. This creates an unfair disparity and misses the opportunity to truly align user fees with road usage.

Intermediate Paths to Better Funding

Given the complexities of implementing a full VMT tax, intermediate solutions offer more immediate and equitable improvements.

Incremental VMT Implementation

  • VMT for Heavy Commercial Traffic: Heavy freight trucks often already have tracking technology installed, making a VMT tax for this class a feasible starting point.
  • VMT for EVs: Focusing an initial VMT tax solely on EVs would address the gap they create in the gas tax base while allowing the gas tax to continue serving as a user fee for ICEV drivers. Several states have already begun experimenting with partial VMT taxes, demonstrating their achievability.

Hybrid Approach: EV Fees and Gas Tax Increases

If a full VMT tax remains off the table, a more balanced approach would involve a lower annual EV fee (e.g., $175) paired with a 50 percent increase in gas and diesel taxes. This would bring the aggregate contributions of EVs and ICEVs closer to parity, though it wouldn’t fully resolve the issue of flat fees disproportionately affecting low-mileage EV drivers or the undertaxation of heavy commercial traffic.

VMT Tax is the Most Sustainable Fiscal Solution for the Highway Trust Fund

(Visual representation showing “Sample VMT” as the highest and most sustainable revenue curve compared to “Current Law”, “Reconciliation”, and “Gas Tax Hike and EV Fee”).

Fairer Contributions: How Different Vehicles Are Taxed

To highlight the implications of these various proposals, consider how they would affect individual drivers:

  • Reconciliation Package: An EV driving an average 15,000 miles a year would pay over 40 percent more in taxes and fees than under a weight-based VMT system. Low-mileage EV drivers would be significantly overcharged, while high-mileage EV drivers and, critically, ICEVs and commercial traffic would remain undertaxed.
  • Mixed Solution (Gas Tax + EV Fee): This approach brings light-duty ICEVs closer to their “proper” tax liability. Average-mileage EV drivers would also see their contributions align more closely with a VMT model, though the flat fee still overcharges low-mileage EVs and undercharges high-mileage EVs. While freight traffic would still be undertaxed, the increased diesel tax would help mitigate this.

How Tax Liabilities for Drivers Compare to Weight-Adjusted VMT (Weight- and Class-Adjusted VMT Tax Liability = 100)

(Visual representation showing how different vehicle types and mileage compare across VMT, Current Law, Reconciliation, and Gas Tax + $175 EV Fee scenarios. Key takeaways: Reconciliation overtaxes average EV drivers while undertaxing high-mileage EVs, ICEVs, and freight. The mixed solution offers better parity for light-duty vehicles but still undertaxes freight.)

  • This chart visually demonstrates the fairness, or lack thereof, of each funding approach across various vehicle types and driving habits.

Conclusion: A Path to Sustainable Infrastructure

The proposed EV fee in the House reconciliation package is a step in the right direction for the Highway Trust Fund’s fiscal woes, but it’s an overcorrection for EVs and fails to address the broader imbalances in road taxes. A VMT tax, particularly one adjusted for vehicle weight per axle, is the ideal long-term solution for ensuring a stable and equitable funding source for our highways. Intermediate options, such as incremental VMT implementation or a combination of EV fees and increased gas/diesel taxes, offer more balanced and achievable steps towards a sustainable and fair system that supports our vital transportation infrastructure.

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