Another Wisconsin biennial state budget has been signed, sealed, and pretty much delivered. Thank goodness!
But, the extensive crew of legislators, number-crunchers, staff, and assorted advisers who assemble this thing every two years aren’t paying attention to a trend. And, mark my word, it’s going to come back to bite them. Allow me to share these recent news nuggets:
- Ford Motor Co. plans to spend more on electric vehicles than it does on internal combustion engine vehicles by 2023. (These are the folks who make the regularly top-selling F-150 pickup truck.)
- Mercedes-Benz says it is investing $47 billion to be ready to take on Tesla in an all-electric car market.
- General Motors, which now holds 17 percent of the U.S. auto market, is building two more battery cell plants in the U.S., supplementing its two battery cell factories now under construction in Tennessee and Ohio.
- Volkswagen delivered 171,000 fully electric vehicles worldwide in the first half of this year. That’s three times as many EVs as it delivered in the same period a year ago.
Guess what? All of those electric cars, pickups, trucks, and buses don’t consume motor fuel (gasoline or diesel). That means their owners won’t be paying fuel taxes. In Wisconsin, that’s about 51 cents a gallon (33 cents to the state and 18 cents to the federal government).
States starting imposing an excise tax on gasoline in 1911 (Wisconsin’s started in 1925). The feds have been taxing motor fuel since 1925.
Easy to collect and convenient to pay, most fuel taxes are simply tacked on at the pump. It’s been going on so long, most drivers don’t even know it’s there.
But state legislators and transportation planners do. A 2019 informational paper prepared by the Wisconsin Legislative Fiscal Bureau reported that fuel taxes totaled $1 billion in 2017-18, accounting for 53 percent of state transportation fund revenue. That money goes to build (and repair) roads and bridges and fund all kinds of transportation programs. Yeah, infrastructure.
Gasoline and diesel aren’t the only fuels taxed here in the Badger State. The state also taxes gasoline blended with ethanol, compressed natural gas, and liquid propane. In other words, if your vehicle is powered by a fossil fuel, you’re being taxed at the pump.
Except for electricity. And, that’s going to become an issue for our state within the foreseeable future.
UBS, a global investment and financial services firm, recently projected that 20 percent of all new cars sold worldwide in 2025 will be electric and reach 50 percent by 2030. That’s why Ford, GM, and all the other automakers are betting big on electric. It’s also why you’re already seeing electric vehicle charging stations in more and more places (including the Racine City Hall parking lot).
State governments have already figured out that they’re losing tax revenue on that relatively small percentage (for now, at least) of vehicles that are powered by electricity. So, some of them have taken steps to grab those dollars they’re missing.
Wisconsin, for example, is among 19 states that levy a surcharge on electric and/or hybrid vehicles. You’ll also find similar fees in neighboring Illinois, Minnesota, and Michigan.
Since 2018, Wisconsin has charged an extra $100 annual registration surcharge for all-electric vehicles. Owners of hybrid vehicles (like the Toyota Prius) have had to kick in an extra $75 a year since 2019. Those registration fees are paid on top of the $85 annual vehicle registration the state charges to everyone who needs to license a car.
But, those surcharges are a stop-gap solution at best. Fast forward 5 years or 10 years and consider how many vehicles on Wisconsin highways WON’T be powered by gasoline or diesel.
Wisconsin’s reliance on motor fuel taxes when fewer vehicles are consuming fuel is a lot like depending on cigarette tax revenue when most people have already quit smoking.
There ARE other ways to pay for transportation infrastructure that aren’t tied to motor fuel taxes. Pete K. Rahn, a former transportation secretary for the state of Maryland and a very smart guy, has some ideas.
Writing in the Politico website, Rahn suggests replacing the present federal motor fuel tax with a “commercial activity surcharge.” Here’s a bit of his argument (which makes a lot of sense):
“Right now, many who benefit from our transportation system do not pay for its upkeep or improvement. For instance, anyone who has packages delivered to their front door or uses ride-sharing services or shops at a retailer that gets goods delivered by truck are beneficiaries of the national highway system even if they never get behind the wheel of a car.” Rahn writes.
He recommends implementing a federal surcharge of about 8 percent on all commercial activity that occurs on U.S. streets and highways.
“Instead of taxing individuals, it would be more similar to the system we have now, in that the costs would be built into the end prices consumers pay. And it would be more equitable than the existing gas tax, which hits poorer and rural drivers harder because they buy less fuel-efficient cars and drive longer distances,” Rahn writes. You can read the entire column at: https://www.politico.com/news/agenda/2021/06/23/gas-tax-better-idea-495572
Yes, Rahn is talking about the federal portion of fuel tax. But he’s absolutely right about the need to come up with a better, smarter, fairer way of paying for transportation infrastructure. Times are a-changing, folks!
The Wisconsin Legislature would be foolish to stick relying on the fuel tax until it becomes completely obsolete. I’d like to see our lawmakers create a study commission NOW, set a deadline for recommendations, and then act on those recommendations.