Freakonomics Radio - 115. The Downside of More Miles Per Gallon

Episode Date: February 20, 2013

The gas tax doesn't work well, and it's only going to get worse. What's next?

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time now for a little bit of Freakonomics Radio, that moment in the broadcast every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is the hidden side of everything. Dubner, how you been, man? Great, Kai. Thank you. Been thinking about you. You drive a lot out there in California, right? It's LA, baby. Of course we do, yeah. What are you paying for gas these days? Ooh, a lot. It's like it's over four bucks a gallon. Okay. So people generally don't like that, even though relatively we pay pretty cheap gas. The good news, however, is MPG, miles per gallon.

We are now at a point where we get more miles per gallon of gas than any time in history, about 24 miles on average for the U.S. car fleet. And that number, because of federal regulations, is going to go up quite a bit in coming years. So great news, right? Great. Yes. Now what? With you, it's always good news, bad news, dude. What do you got? Well, let's go a little deeper. Fuel economy goes up. It means that the cost of every mile you drive goes down. So people have an incentive to drive more, which can lead to more congestion, more risk of accident. but there's an even less obvious problem than those. Where do we think the money to build and maintain our roads all comes from?

Here is Jamie Rall from the National Conference of State Legislators. And right now, the nation relies extremely heavily on gas taxes for transportation funding. And advancements in fuel efficiency pose some real problems for transportation budgets. If you follow the logic train here, it's people are using less gas because cars are more efficient and then there's less tax revenues being raised to pay for the roads, right? You got it. Revenues are hurting, but it hurts additionally because the gas tax is such a strange tax. Instead of being a percentage of, you know, whatever, 2%, 5% per gallon, it's a fixed rate. So the federal rate is $0.18 a gallon. States add their own state taxes on, again, a fixed rate. So because it's fixed, unlike, let's say, a sales tax, you don't raise more tax revenue when the price of gas goes up.

So every year what happens is gas tax revenues lose purchasing power. All right. So this is one of those got to ask a question, even though I know the answer. Why not just raise the gas tax? It would seem logical. Economists have been, many economists have been lobbying that for years, but politically, for whatever reason, the gas tax is one of these things that is just a no-go zone. All right. So find me the freakonomics way out of this then. Let's go down a wrong path first. I hate to pick on politicians, but the governor of Virginia, Robert McDonald. Yes. Has an idea that seems like a pretty bright idea, but most economists would say it's not bright at all. What he wants to do is eliminate the state gas tax in Virginia and make up for those funds by raising the sales tax. And that's a bad idea because?

Because a tax is most fair when it hits the people who should pay it, but leaves everyone else alone, right? But what Governor McDonald is doing is flipping that logic. All right. So hit me with your plan. Well, there is a growing movement. I don't know how well this would work, but the idea is this, to tax drivers the way they probably should be taxed, which is per mile driven. So that way, you'd pay the same amount for

the roads, whether you're driving a gas guzzler or an electric car that doesn't use any gas at all. Here's Jamie Rall again. At least 18 states have pursued pilot projects. And in the past five years, legislatures in at least 11 states have considered more than 20 proposals to establish or study state-level fees of this kind. Yeah. You know what, though? This smacks of Big Brother watching me when I drive, dude, knowing how I'm going, right? People will not like this idea in many cases, I would say. On the other hand, let me just say this. We've all gotten used to willingly carrying around a GPS device with us at all times, which is what a smartphone does. Right. We're also getting used to the ideas of electronic tolling where we don't have to stop at the booth. So I wouldn't they do in other parts of the world, which is this guy, traffic fines that are indexed to how much money you actually earn. So in Finland, for instance, if you get a speeding ticket, you are fined about 20% of one

month's take-home pay. So the speeding fisherman is going to pay a lot less for his ticket than the speeding high-tech boss or radio talk show host, for that matter. Yeah, ba-dum-boom. One cautions, though, that this is America, my friend. That's true. Not yet, Kai. Check in with me in a couple weeks. We'll see if we're all looking a little bit more Finnish around the ears, okay?

Stephen Dubner, Freakonomics.com is the website. We'll see you in a couple of weeks. Thanks for having me, Kai. See you. Hey, podcast listeners. Over the past 30 years, women have made huge income gains. So they should be happier, right? Women told us that they were happier with their lives in the 70s than men were. So we had a happiness gap. And what we have now is a new gap where men report greater life satisfaction than women.

On our next episode of Freakonomics Radio, the many ways in which women are not men.