Issues and Options for a Tax on Vehicle Miles Traveled by Commercial Trucks

Historically, most of the funding for U.S. highway programs has come from the Highway Trust Fund (HTF), which is credited with revenues from federal taxes on highway users, including fuel taxes. In almost every year since 2001, spending from the HTF has exceeded those revenues—in 2017, for example, the fund had about $41 billion in revenues and $54 billion in outlays. To help cover those shortfalls, the fund has received $144 billion in transfers, primarily from the Treasury’s general fund. CBO projects that under current law, the HTF will be exhausted by 2022. Sustaining it will require continued transfers from the general fund, reduced spending on highways and transit programs, increases in existing taxes on highway users, new taxes credited to the fund, or some combination of those approaches.

In this report, CBO focuses on one example of a potential new tax: a federal tax on vehicle miles traveled (VMT) by trucks. Kentucky, New Mexico, New York, and Oregon already levy such taxes at the state level. A federal VMT tax on trucks could provide additional revenues to the HTF; it could also substitute for existing taxes on trucks that are credited to the HTF. However, implementing a VMT tax would impose greater costs on the federal government and trucking companies than increasing existing taxes.

What Choices Would the Congress Face in Establishing a VMT Tax on Trucks?

To establish a truck VMT tax, lawmakers would have to consider the tax base, the structure of the tax rates, and how the tax would be implemented. CBO used data on truck traffic in 2017 to analyze how differences in those factors would have affected the revenues generated by a truck VMT tax in that year.

Tax Base. Two key choices about the tax base would be the set of trucks subject to the tax and the set of roads on which travel would be taxed. For illustrative purposes, CBO analyzed taxes on combination trucks (those with one or more trailers) and on all commercial trucks (defined here as combination trucks and single-unit trucks with six or more tires or an operating capacity— consisting of the vehicle’s weight plus its maximum load—exceeding 10,000 pounds). Combination trucks represented 28 percent of commercial trucks in 2017 but accounted for more than 60 percent of the miles traveled by such trucks.

CBO also considered three choices of the road network: all public roads, Interstate highways and other arterial roads, and Interstate highways only. In 2017, travel on Interstates accounted for 41 percent of the miles traveled by all trucks and more than half of the miles traveled by combination trucks.

Structure of the Tax Rates. A uniform tax rate could be applied to all travel by all trucks included in the tax base. Alternatively, the miles traveled by trucks could be taxed at different rates on the basis of one or more factors: vehicle type or configuration (such as single-unit versus combination truck), vehicle weight or weight per axle, and location or location and time of travel.

The structure of the tax rates would affect commercial trucking companies’ incentives to use roads efficiently. Rates differentiated by trucks’ total weight or weight per axle could potentially help reduce pavement damage; rates differentiated by where (or where and when) travel occurred could potentially help reduce traffic congestion.

Implementation Methods. A key question about a truck VMT tax is how the taxable mileage would be assessed. There are three main options:

• Odometer reading,
• Radio-frequency identification (RFID) readers, or
• Onboard devices.

Those options, which could be used exclusively or in various combinations, each have particular advantages and disadvantages in terms of their costs and compatibility with different tax regimes.

• A system based on odometer reading would require little or no capital spending—that is, spending for new equipment or facilities. However, the government’s cost for enforcement, to keep evasion at an acceptable level, could be relatively high. Such a system could be used to implement a uniform tax on all miles driven on all roads; it would not allow for taxing a subset of roads or charging different rates by location or time.
• A system based on RFID readers mounted on gantries, roadside pillars, or collection booths (like those used on many toll roads) would facilitate charging different rates by location and would have low costs for enforcement. However, capital costs would be high because accurate assessment of miles driven would require readers at each access point on taxed roads. Estimated costs for a proposed system for Interstate highways, which have comparatively few access points and represent less than 3 percent of total lane miles, are in the tens of billions of dollars. For a system that covered more roads, costs would be much higher.
• A system based on onboard devices, such as electronic logging devices (ELDs), could be compatible with location-related taxes, depending on the devices’ capabilities, and enforcement costs would probably be relatively low. Capital costs would depend on the set of trucks included in the tax base. Roughly one-quarter of all commercial trucks—including most combination trucks—have or will soon have (when state compliance dates have all been reached) ELDs to comply with federal and state rules that regulate drivers’ working hours. A tax system that included all trucks would entail capital costs—borne by trucking companies, the federal government, or both—to place devices in the trucks not already using them and, potentially, to upgrade existing devices. If travel on some roads was not taxed or tax rates differed by location, the devices would need to have higher spatial resolution, which would increase those costs.

How Might a Truck VMT Tax Affect the Federal Budget?

CBO estimates that in 2017, taxing travel by all commercial trucks on all public roads at a rate of 1 cent per mile, with a compliance rate of 90 percent, would have generated $2.6 billion in revenues; taxing travel by combination trucks alone would have generated $1.6 billion. (Those figures include revenues from miles traveled by trucks, such as those owned by state and local governments, that are exempt from one or more HTF taxes.) By contrast, a tax of 7.5 cents per mile on all commercial trucks would have generated $19.4 billion. That amount would be enough to replace the $14.6 billion in HTF taxes paid by truck owners in 2017 plus their proportional share, based on those taxes, of the $13.5 billion shortfall between the HTF’s tax revenues and outlays that year.

For any given tax rate, a VMT tax that excluded local roads would have generated 21 percent less in revenues if all commercial trucks were taxed and 13 percent less if only combination trucks were taxed. For a tax only on Interstate highways, the corresponding reductions are 59 percent and 47 percent. Those figures do not reflect the possibility that truck owners might divert some of their traffic to untaxed roads.

In CBO’s assessment, to the extent that the VMT tax increased the amount of taxes paid by truck owners (rather than substituting for current taxes), two behavioral responses would result: a reduction in overall freight shipments and a shift in some freight traffic from truck to rail. CBO estimates that for the tax rates considered here, those responses would have jointly reduced trucks’ mileage in 2017 by amounts ranging from 0.4 percent to 1.6 percent. (CBO’s revenue estimates account for those reductions.)

Besides generating revenues, a truck VMT tax would affect the federal budget in two ways. First, the tax would impose costs. Data from Oregon’s VMT program indicate that the state’s annual costs for processing payments, auditing compliance, and collecting from delinquent accounts are on the order of $20 per truck. Nationally, that would correspond to roughly $210 million for a tax on all commercial trucks or $60 million for a tax on combination trucks alone. However, federal costs could differ from Oregon’s because of differences in assessment and collection methods, differences in auditing efforts, and economies of scale. Capital costs and field enforcement costs would depend on how the tax was implemented and what level of evasion was considered acceptable. As a percentage of revenues raised, implementation costs would be lower for higher tax rates.

Second, a truck VMT tax that generated new revenues would reduce receipts of income and payroll taxes. (Excise taxes like VMT taxes raise costs for businesses in the taxed industry, which must reduce their profits, cut expenses such as payroll costs, or pass the costs of the taxes on to consumers, who then have less money to spend on goods and services from other industries.) To approximate that effect, the staff of the Joint Committee on Taxation estimates an offset percentage for legislative proposals that would raise excise tax revenues. In 2017, the offset was about 26 percent. Under current tax law, it is now about 22 percent.

Would the Distributional Effects of a Truck VMT Tax Differ From Those of the Diesel Tax?

Like the current tax on diesel fuel used by commercial trucks, a VMT tax on those vehicles would affect households primarily through its effect on the prices of shipped goods. Because lower-income households tend to spend a larger share of their income on goods, that effect would be regressive. CBO estimates that if a VMT tax had yielded the same revenues as the diesel tax in 2017, it would have had similar distributional effects: In either case, the tax component of the price of goods would be about 0.06 percent of the income of households in the lowest income quintile (the bottom fifth of the distribution), compared with 0.02 percent for households in the highest income quintile. CBO also estimates that the relative burden of a truck VMT tax on rural and urban households would not be significantly different from that of the diesel tax.