Can a progressive tax be environmentally regressive? Yes, if drivers of more fuel efficient cars are generally wealthier than those driving less fuel efficient vehicles.

The road usage tax proposed by the Hawaii Department of Transportation provides a perfect example of this dichotomy. But regardless of tax progressivity, the road usage tax is clearly environmentally unfriendly.

HDOT recently sent out invitations to the public soliciting input on transitioning from our current tax on each gallon of gasoline sold to a road usage tax based instead on miles driven. The rationale given was that more fuel efficient cars such as hybrids and electrics have led to declining gasoline sales and reduced tax receipts for the state and counties as a result.

While gasoline purchases may indeed trend lower in the future, the evidence to date is not conclusive. The Hawaii Department of Taxation reports that consumption has fallen 1% since 2017, but has increased 3.4% since 2015.

In Honolulu County the combined state and local gas tax is $0.325 per gallon. Hawaii, Kauai, and Maui counties are all slightly higher. A tax hike to $0.328 per gallon would offset the 1% revenue loss in Honolulu.

In its letter to me, the department graciously included an analysis of how my tax payments would change under the road usage tax scenario.

In 2019, I drove 8,717 miles, according to HDOT records. It was assumed that my 2017 Ford Escape averaged 24 miles per gallon. The road usage tax was only $0.016 per mile, quite a bargain at first glance.

However, when multiplied by the 24 mpg average, the fee jumps to $0.384 per gallon, an 18% increase over the present $0.325 rate! That might not seem like a lot, only an extra $21 per year, but when applied to the entire state, the additional tax collections would exceed $27 million.

Maybe I’m an unusual driver, but across the 43,000 miles driven in my Ford Escape, I have averaged 36 mpg, so I thought it might be an interesting exercise to see what the true impact of the HDOT proposal would be for me.

The math is straightforward: simply multiply the $0.016 per mile road usage fee by that 36 mpg. The tax per gallon equivalent is now $0.576, a 77% increase over the current $0.325.

I don’t believe that everyone averages 36 mpg, but if they did the tax receipts by the state and counties would surge upward by about $115 million over and above the 2019 total of approximately $151 million. Now that’s a tax increase!

While an island-wide 36 mpg may not be realistic near term, it does seem to be a very attainable, even conservative, goal given our green initiatives. But the closer we get, the higher the tax bill.

Do The Math

If one knows one’s average mpg, one can easily calculate how one’s individual tax bill will change. Just multiply the mpg by the $0.016 per mile fee and compare that to the existing $0.325 per gallon tax.

If the mpg is 20 or less, the tax paid will be lower, if greater than 20, the tax will be 4.9% cumulatively higher for every 1 mpg improvement in fuel efficiency. The gas usage fee is the epitome of a regressive tax. Gas guzzlers will rejoice, while conservationists will lament.

I suspect that HDOT’s request for input is merely a formality.

HDOT implies that the state and county gas taxes would be eliminated upon imposition of the road usage tax. Even if the state did so, would the City and County of Honolulu follow? How about the other counties? It’s very possible we would end up being double taxed.

Another of the justifications HDOT makes for this change is that electric vehicles pay a minimal, if any, gas tax, yet they contribute to the wear and tear on our highways. This is true, and these cars are also granted free parking at airports and city lots, in addition to significant taxpayer subsidies.

Instead of punitively hiking the taxes on all drivers, would it not be more reasonable to first rescind these selective other benefits? The revenue gained could help to offset any tax loss due to falling gas sales.

I’m going to submit my survey to HDOT, but I suspect that the request for input is merely a formality.

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