President Joe Biden’s 2022 infrastructure package, specifically the vehicle mileage tax program, has caused a bit of a kerfuffle on some media outlets. It’s led to some confusion, and in some cases, the spread of misinformation.
When it comes to your wallet and your wheels, you deserve to be in the know. We’ve broken down the key points and takeaways, so you can form your own opinions on this new program.
What’s Biden’s vehicle mileage tax program?
On November 15, 2021, President Joe Biden signed his $550 billion “Bipartisan Infrastructure Law” into law, which was hailed as, “the largest long-term investment in our infrastructure and economy in our Nation’s history.” As the name implies, the package received bipartisan support, with the majority of House Democrats and 13 Republicans voting in favor.
Included in this 2,700-page package (feel free to skim if you’re up for some… light reading) is a $125 million pilot program pertaining to a vehicle mileage tax. The idea behind the national study is relatively straightforward: With more hybrid and electric cars on the road, a mileage tax could replace or supplement a fuel tax as a more accurate way to tax drivers.
Starting in 2022, volunteers from all 50 states will be asked to participate in a three-year program, which will track how much they drive using a telematics device installed in their car.
Both personal and commercial vehicles will be asked to take part in the pilot. Based on their mileage, volunteers will be asked to pay a “vehicle mileage” tax once a quarter.
For this initial pilot program, volunteers will be fully reimbursed for any fees they pay. In other words, they won’t really owe anything—they’d just get an idea of how much they would owe, in a hypothetical future in which such a mileage tax is a reality.
So, this program is imposing a driving tax?
Nope. This program isn’t a tax (yet), it’s more like a study of how a tax like this could work in the future, using volunteers who have opted in.
A viral image on Facebook spread that Biden’s “driving tax” would charge taxpayers 8 cents per mile. That is false. Again, the pilot program is basically an experiment and a trial—it doesn’t implement an actual tax.
Here’s the truth, in a nutshell:
- Participation in the program is voluntary, and all tax fees collected from participants will be reimbursed during the pilot.
- Based on a Treasury Department calculation, the fees would amount to be a little bit less than one cent per mile.
Why is the U.S. government considering taxing drivers like this?
Ok, time to put on your tax hat.
In the U.S., there are excise taxes, a form of sales taxes, on certain goods and services like cigarettes, sports betting, tanning services, alcohol, airline tickets and, of course, gasoline. The money collected through excise taxes are used to finance local and national transportation, environmental, and health-related government spending.
The federal gasoline tax is 18 cents per gallon, and 24 cents per gallon on diesel fuel, with state taxes averaging 31 cents per gallon and 32 cents per gallon, respectively. That means that, on an average trip to the pump, you’re likely paying around 49 cents per gallon in combined state and federal fuel taxes.
Gasoline taxes specifically support the Highway Trust Fund, which finances federal spending on highways and public transportation. According to the 2019 National Expenditure Report, taxes on fuel accounted for nearly 40% of transportation revenue. That’s a lot of asphalt.
For the past 100 years, the logic for a gas tax has been pretty simple: The more you drive, the more gasoline you use, so the more tax you pay in order to maintain the roads you drive on.
Makes sense, right?
But the rise of hybrid and electric cars has put this logic into question, since gasoline use is no longer necessarily correlated with how much a person drives. With this latest program, lawmakers and transportation authorities are testing a new way to adequately tax drivers.
So, will this be the end of taxes on gasoline?
This is the million (or several billion) dollar question.
The answer remains to be seen, and will probably depend on how effective this initial pilot program goes. A future vehicle mileage tax could replace or exist alongside some form of the current state and federal taxes on gasoline.
Is a mileage tax good for the environment?
Well, yes and no.
Let’s say a mileage tax like this results in gasoline taxes being eliminated. A mileage tax program could mean that drivers of “gas guzzlers” would then get away with paying less at the pump, and could end up paying the same per mile as their hybrid and electric car counterparts. That would make Mother Earth cringe.
You could also argue that a mileage tax will no longer discourage drivers from choosing cars with poor fuel efficiency, and could partially disincentivize purchasing a hybrid or electric car to begin with.
Check out the Washington Post’s interactive chart to see exactly who stands to save and lose money under the federal mileage tax program.
Before you think this program is bad news for climate change, there is the potential that future iterations of the mileage tax program could adjust fees based on where you live, the car you drive, and when you spend your time on the road. These adjustments would help account for a driver’s carbon emissions, eliminating a potential bias against EVs.
For those with a daily commute, a mileage tax could help nudge drivers to consider carpooling and public transportation, which are fundamentally more sustainable alternatives.
Before we drive off…
Despite the rumors, the mileage tax pilot program probably won’t have a major impact on your life right now, but that doesn’t mean you shouldn’t pay attention. In the coming years, you’ll probably be hearing more about states adopting and testing practical alternatives to taxes on gasoline.
Meanwhile, if you’re looking to save based on that number on your odometer, Lemonade Car will tailor your insurance premiums depending on how much (or how little) you drive, meaning that low mileage drivers pay way less.
Apply now to see how Lemonade is doing car insurance differently.