Are Tesla Drivers Tax Dodgers?

President Biden is seeking a three-month suspension of the federal gasoline tax. The idea is that a temporary tax holiday would ease the financial hardship on U.S. motorists. Before anyone starts celebrating, let’s do a reality check.

It’s no secret that gas prices have skyrocketed. Nationally, the average retail price is hovering around $5 per gallon. Nobody can be sure whether those prices are a short-term phenomenon or the new normal.

While people are now acutely aware of gas prices, most of us don’t think much about gasoline taxes. That’s because their imposition is obscured from our attention, as is the case with many sales or excise taxes. The prices we see at the pump are tax-inclusive, and you know what they say: Out of sight, out of mind.

For the record, the federal gas tax is roughly $0.18 per gallon for regular, and $0.24 per gallon for diesel. Those rates have been remarkably static over the years: Congress hasn’t increased them since 1993, a quarter century ago.

Proceeds from the tax are directed to transportation and infrastructure spending. It’s a little disappointing that Congress is chronically unable to raise the funds for new infrastructure projects, given that there’s an available revenue tool dedicated specifically to that purpose. Most U.S. taxpayers want better roads and bridges, but any vote in favor of a rate increase is seen as politically risky.

Surprisingly, it’s also proving difficult to reduce the rate — at least in the manner that Biden has suggested. Based on early reactions, there’s not a lot of enthusiasm for a gas tax holiday on Capitol Hill. Republicans typically regard any tax cut as a normative good, but they’re mostly opposed to Biden’s proposal.

Democrats aren’t rallying behind it, either. Back in March, House Speaker Nancy Pelosi, D-Calif. poo-pooed a similar idea, dismissing it as “very showbiz.” Pelosi’s point was that there’s nothing Congress can do to force the business sector to pass the tax savings on to consumers.

Estimating the price effects of a tax holiday is complicated, relying on assumptions about the elasticity of demand. Recently, the Penn Wharton Budget Model analyzed Biden’s proposal and estimated the average per-capita tax savings would range between $4.79 and $14.31. That’s not much when you consider the savings are spread over July to September. At its most generous, that’s pennies a day. Hardly worth the trouble, when you consider the drain to federal revenue.

So, what’s a driver to do?

Depending how desperate you are, there are a few self-help options to consider. If practical or possible, you can use public transportation or bike to work — but those solutions clearly don’t suit everyone’s circumstances.

The best option is to ditch your gas guzzler in favor of an electric vehicle. If you’re not inclined to do it for the sake of environmental concerns, do it for the sake of good old-fashion tax avoidance. There is literally nobody in the country who cares less about the price of gas — or gas taxes — than someone who drives a plug-in.

If the federal gas tax is meant to function as a road use fee, the nontaxation of EVs is a glaring loophole — and one that grows wider with each passing year, with EVs accounting for an increasing share of new car sales.

At some point, the national fleet of EVs will attain critical mass and policymakers will realize the federal gas tax is no longer fit for purpose. It has a free-rider problem in that it fails to account for cars without a gas tank. At that point, there will be attempts to convert the gas tax into a genuine user-fee based on how many miles you drive over the course of a year.

That conversion process will involve a paradigm shift. We might see a federal tax that’s administered by states DMVs relying on GPS tracking. Rather than pay a tax at the pump, a vehicle’s registered owner would receive a quarterly tax bill corresponding to actual miles driven. Should the owner fail to pay the tax, the DMV could decline to renew the vehicle’s registration or the owner’s driver’s license.

That solves the free-rider problem, as all vehicles would be on equal footing for tax purposes. It’s reasonable from a fairness standpoint. The more you use the roads, the more you pay for their maintenance and improvement.

However, that kind of a tax regime would require an element of technological intrusiveness that will raise some eyebrows. The DMV would literally be monitoring your daily movement.

The questions abound: Would the harvested information be limited to tax administration, or would it be made available to other governmental agencies? Would insurance companies use the data to evaluate risks and set premiums? Could a private party access the data to learn where someone travels during the day?

One imagines a cottage industry geared toward vehicular cyber-snooping: Is your spouse really playing golf all day?

There’s enough of a privacy concern that lawmakers will have reservations about that kind of tax regime, despite its virtues. That’s another factor that plays in favor of inaction. We’re left viewing the federal gas tax as, bizarrely, frozen in place — as it has been since 1993. There’s no political taste for raising the tax rate, or for reducing it. And the optimal replacement regime has a privacy obstacle.

We might be stuck with the federal gas tax as-is for years to come. In that case, the most opportunistic response is to exploit the free-rider problem to one’s own advantage. Forget Biden’s temporary tax holiday — earn yourself a permanent tax holiday by purchasing an EV.