The Distributional Impacts of a VMT-Gas Tax Swap

Abstract

More stringent fuel-economy standards and increased popularity of electric vehicles (EVs) are contributing to an erosion in federal motor vehicle fuel excise tax revenues. One solution to this problem is a vehicle miles traveled (VMT) tax. I consider the distributional implications of a federal tax swap where a VMT tax is used to finance a reduction in the federal excise tax on gasoline. The distributional impact of this tax swap depends on the sign of the income elasticity of demand for fuel intensity.Using data from the 2017 National Household Travel Survey, I find that the income elasticity of fuel intensity is negative and that this revenue-neutral tax swap is mildly progressive for all household incomes below $200,000. How the progressivity of a tax swap changes as fuel-economy standards are raised and EV market penetration increases depends on who purchases EVs and more efficient vehicles. I demonstrate how federal policy will likely influence those who buy EVs and the ultimate distribution of the tax swap. In addition, I find the tax swap benefits rural drivers and has no appreciable differential impacts on Black and Hispanic households.