Distributional Impact of a Vehicle Miles Traveled Fee

Abstract

Highway funding is facing a challenge because of difficulties in raising the federal and state fuel taxes. With the increasing use of electric, hybrid, and other forms of fuel-efficient vehicles, it is predicted that gas tax revenue will decrease. One potential alternative, a vehicle miles traveled (VMT) fee, was examined in this study. The tax burden in each household by income group and residential area was analyzed under the current fuel tax system and a VMT-based fee system. This study includes two VMT-based fee scenarios: 1) static—where people do not change their travel behavior and 2) dynamic—where people change their travel behavior because of the change in travel cost. A VMT demand function was derived by examining data from the National Household Travel Survey and, using regression analysis, considering the fuel cost per mile and traveler characteristics. The increase in cost between the current tax system and the VMT fee system was similar across income groups, but increased average urban household payments while decreasing average rural household payments. However, the VMT had a greater impact on the lower-income group in that they decreased their amount of travel.