Electric Car Road Use Taxes are Regressive

Jun 12, 2017

How extra yearly registration fees for electric cars is clearly a regressive tax probably designed to suppress the market for them and does not fairly solve the gasoline tax revenue shortfall for maintaining the roads and highways.

I was reading an article the other day about how Minnesota has passed an extra yearly registration fee of $75 per year in an attempt to make up for lost revenue from gas taxes. We have seen this regressive taxation scheme in other states where the legislators are in the pockets of the oil and gas lobby, misinformed, or worse.

Interestingly enough the new Minnesota law would not apply to my Ford C Max PHEV if I lived there because it has a gasoline engine. If the authorities understood that we do two thirds of our driving in EV mode and only 1/3rd of it in IC mode I am sure they would have included PHEV’s in on their enhanced vehicle registration revenue stream. Apparently they are just not very knowledgeable about electric vehicles in general.

I think these extra fee plans are the wrong way to go about solving a problem, electric cars are not creating (at least yet) since the EV market share is less than one percent of the vehicle on the road. The problem dwindling gas tax revenues (for highway maintenance) stem from the fact that Federal mandates have made cars and trucks more fuel efficient over the intervening decades since these taxes originated.

The fuel tax is levied on a per gallon basis. Inequities in the fair share of how this tax is levied exist around the whole IC vehicle fleet. Cars that get 36 mpg pay less tax then vehicles that get 20 mpg on a yearly basis and no one thinks this as a problem.

Let us take the fleet average of 25 mpg and 12,000 miles a year. In Minnesota the fuel tax is 28.6 cents per gallon. A car that got 25 mpg would pay $137.78 per year. A 20 mpg vehicle, would average $171.60 per year, while a 36 mpg car would only pay $95.33 per year.

This result clearly shows that a $75 registration fee that applies only to electric cars is regressive. If the rationale were a tax based upon gallons of gasoline (gallons of energy equivalent) and not a vehicle type to levy a fixed tax again regardless of miles traveled or energy used then a fixed fee is counter productive.

To show you what I mean let’s take a Chevy Bolt for an example. The Bolt is capable of 119 mpg e in combined driving. What would this car pay per year at the rate of 12,000 miles per year of driving? The answer is 12,000/119 = 100.84 gallons x 0.286 = $28.84. That is a far cry less than the assessed fixed fee of $75 per year.

Looked at in this light this enhanced revenue fee levied solely against electric vehicles is clearly regressive. It penalizes EV’s for being energy efficient and no other vehicle types are singled out for this singular treatment. My PHEV would only raise $32.65 in revenue for the state in gasoline tax and it is exempted from the tax all together.

Let us just take cars registered in Minnesota (as of 2009) which is 2.5 million vehicles. What is Minnesota going to do if all the cars in Minnesota end up being EV’s? Their road tax revenues would disappear to be replaced by a fixed yearly fee per vehicle that would only raise $187 million dollars instead of the current fuel taxes that raise $344 million dollars. That is a $157 million dollar short fall.

This extra yearly fee does not discriminate on who drives how much or how much energy they use to do so. It makes no difference if you own a garage queen and only drive a few thousand miles a year versus being someone who crisscrosses the state constantly racking up tens of thousands of miles. It is a regressive tax on the poor, the retired citizen, and a tax break on the person or persons who can afford to travel a lot and make good money (in a business application) doing so.

Clearly there has to be a better and a more fair taxing revenue system that the state (any state uses) to make up for lost road tax revenue from fuel efficient vehicle in general and the coming wave of electric vehicles generally. My suggestion is that since it is yearly registration fee that is in play here that the tax be assessed for the miles driven and not be a flat tax.

The exact fee per kWh or gallon equivalent has yet to be determined. The math tells you if you wanted to raise 28.6 cents per gallon equivalent you would assess 7.15 cents per ten kWh. With charging loses you could round a gallon of gas equivalent out to 40 kWh’s or 28.6 cents. This would not be that hard to do as all you would have to do is report your odometer every year. There would need to be a table for every vehicle type. There would need to be a fall back fee for vehicles not yet on the table.

If legislators were really interested in addressing the fuel tax shortfalls for road maintenance they would get a sharper pencil out and really figure this thing out so that the system is fair and equitable. If they have other goals such as suppressing the sales of electric cars in their state then they are currently on a path that can do that. They need to prepare for a day when very little gasoline and diesel is being sold and they are not doing that right now. I hope they start seeing the problem for what it really is as this is the only way to actually solve the problem.

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