"Don't Worry, We'll Find a Way to Tax You..."

Within my recent post on gambling is the observation, which is by no means an original thought, that government makes much revenue off of vice. The ironic flip side is that as government tries to "legislate morality" in the sense that they attempt to modify behavior (I'm thinking cigarettes here) by raising the cost, they also succeed in driving down demand. Thus, while initial revenue via a tax (such as the cigarette tax) will grow, the government will be forced to raise the tax to maintain the revenue stream as demand drops. In the case of the cigarette tax, more activist policies, such as making bars and restaurants smoke-free, futher exacerbates the problem of a tax-on-vice revenue shortfall by adding even more restrictions and dampening demand further. In short, government policy succeeds in demonizing, and taxing, a revenue stream out of existence.

A similar situation may be occurring with the gas tax. I first heard this story on Rush Limbaugh's show while driving around yesterday. I wish I could say I was surprised.

College student Jayson Just commutes an odometer-spinning 2,000 miles a month. . .his monthly gas bill once topped his car payment. . .

So Just bought a fuel efficient hybrid and said goodbye to his gas-guzzling BMW. . .And that saves him almost $300 a month in gas. It's great for Just but bad for the roads he's driving on, because he also pays a lot less in gasoline taxes which fund highway projects and road repairs. As more and more hybrids hit the road, cash-strapped states are warning of rough roads ahead.

Officials in car-clogged California are so worried they may be considering a replacement for the gas tax altogether, replacing it with something called "tax by the mile."

Seeing tax dollars dwindling, neighboring Oregon has already started road testing the idea.

"Drivers will get charged for how many miles they use the roads, and it's as simple as that," says engineer David Kim.

Kim and his team at Oregon State University equipped a test car with a global positioning device to keep track of its mileage. Eventually, every car would need one.

"So, if you drive 10 miles you will pay a certain fee which will be, let's say, one tenth of what someone pays if they drive 100 miles," says Kim.

The new tax would be charged each time you fill up. A computer inside the gas pump would communicate with your car's odometer to calculate how much you owe.

The system could also track how often you drive during rush hour and charge higher fees to discourage peak use. That's an idea that could break the bottleneck on California's freeways.

"We're getting a lot of interest from other states," says Jim Whitty of the Oregon Department of Transportation. "They're watching what we're doing.

"Transportation officials across the country are concerned about what's going to happen with the gas tax revenues."

Privacy advocates say it's more like big brother riding on your bumper, not to mention a disincentive to buy fuel-efficient cars.

"It's not fair for people like me who have to commute, and we don't have any choice but take the freeways," says Just. "We shouldn't have to be taxed."

But tax-by-mile advocates say it may be the only way to ensure that fuel efficiency doesn't prevent smooth sailing down the road. [emphasis mine]