Electric cars: Good for environment, bad for taxpayers?

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You can save a lot of money by switching to a battery electric vehicle (BEV): up to $14,500 over 15 years in lower fuel costs, according to the Department of Energy. As a bonus, you can feel better about your carbon footprint. No wonder more than 300,000 Americans purchased BEVs or plug-in hybrids (PHEVs) in 2020. We predict that, at the current rate, more than 500,000 will have bought them by the end of 2021.

 

There’s just one problem: Gas taxes fund road construction and maintenance. As BEVs replace petrol-powered cars — and state transportation budgets literally run out of gas — who’ll pay for the pavement?

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Congress has reallocated $150 billion since 2008 to cover the Highway Trust Fund’s shortfalls. At the state level, America is also facing enormous transportation revenue deficits. They could have big implications for what you’ll soon pay whenever you go to the pump (or to the charging station).

 

We crunched 20 years of data on state-by-state BEV, PHEV, and classic hybrid electric vehicle (HEV) adoption, along with state gas tax increases, number of drivers (and average miles driven) per state, and even fuel-efficiency forecasts.

 

Here’s what our projections found.

 

Key Findings

  • Unless states make changes to their current EV fees, they’ll cumulatively lose $6 billion in gas tax revenue by 2025. If the trends continue, they’ll lose $25 billion by 2030.
  • States are charging consumers more gas tax than ever in an attempt to make up these deficits. In the last 10 years alone, average state gas tax rates have skyrocketed by 26.1 percent, with Pennsylvania levying the most at 59 cents per gallon.
  • Even with these high gas tax rates, four states (Connecticut, New Jersey, New Mexico, and Rhode Island) generate less in gas tax revenues now than they did 20 years ago. New Jersey raised its gas tax by 6.3 percent over the past three years, but saw a 3.5 percent revenue decline nevertheless.
  • States are implementing extra annual BEV, PHEV, and hybrid registration fees between $20 and $225 to recover their funds, but experts believe a vehicle miles traveled (VMT) tax needs to replace the gas tax. If this tax happens, BEV and PHEV owners can expect to pay around $100 or more extra per year.

Check out InMyArea.com’s other research on local taxes and cost of living:

States Stalling Out With Gas Taxes

In 2020, state and local gas taxes raised $51 billion. However, only four states (California, Indiana, Montana and Tennessee) can fund their transportation costs through gas taxes alone now.

 

That’s because infrastructure has become remarkably expensive. “Spending on highways buys less now than at any time since the early 1990s,” reports the Congressional Budget Office. Plus, many states never tied their gas taxes to inflation.

 

It’s why so many states have desperately raised gas taxes in recent years. You can see this increase in the following map.

States Stalling Out With Gas Taxes

But higher gas taxes are insufficient in the long run, because BEVs are replacing traditional vehicles at increasing rates — and even traditional vehicles are getting more fuel-efficient each year. According to trends from the Bureau of Transportation Statistics, forecast miles per gallon for all fleet vehicles on the road will rise from 24.4 mpg to 25.7 mpg over the next decade.

 

Between rising EV sales, the EV fee gap, and improving fuel efficiency, a perfect storm is forming. When we put all of our data together, here is the picture that emerged.

States with the highest gas tax losses by 2033

Here are the 15 states that stand to lose the most revenue by 2025 and 2030, according to our calculations:

 

15 states that stand to lose the most revenue by 2025 and 2030

More than half of states have already seen their gas tax revenues decline over the past few years. Between 2018 and 2020, Michigan’s fell by 18.56 percent, Utah’s by 13.45 percent, Rhode Island’s by 10.57 percent, and Washington’s by 8.68 percent. The situation is dire everywhere.

The Rise of Hybrid and Electric Vehicles

Only 17 Americans bought hybrid cars in 1999, but it was the dawn of a revolution. When the Toyota Prius entered the U.S. market in 2000, no other street-legal vehicle got close to 50 mpg. Still, sales weren’t phenomenal: Americans purchased fewer than 10,000 hybrids that year.

 

This trend changed quickly. Although the Prius was infamous for slow acceleration on the road, it had massive acceleration off dealers’ lots.

  • In 2001, Americans purchased over 20,000 hybrids, double the first year’s sales. By 2006, Americans were buying a quarter-million hybrids per year, and in 2013, hybrid sales leveled off at nearly half a million.
  • Similar growth soon occurred for BEVs (from 10,000 sold in 2011 to 240,000 in 2020) and PHEVs (from 300 sold in 2010 to 66,000 in 2020).
  • We estimate that between 2020 and 2025, Americans will buy 7.8 million BEVs and PHEVs. Between 2020 and 2030, Americans will buy 26.1 million electric vehicles.

Hybrid and Electric Vehicle Sales in the U.S.

To fully understand these numbers, we need to talk about California.

 

In 2007, Californians purchased more than a quarter of hybrids in the U.S. By 2013, the Prius was California’s most popular car line. This trend is partly attributable to the Golden State’s environmental politics and to its significant gas tax, the highest in the country at 53 cents per gallon.

 

When BEVs hit the scene in the 2010s, California drove the market again:

  • California registered 425,300 EVs in 2021, accounting for 42 percent of the domestic market share.
  • While you might think California would lose gas tax revenue and the ability to pay for its roads, our historical tax research shows that it nearly tripled its gas tax between 2000 and 2021. This shift raised annual revenues by 178 percent, making up for any shortfalls that hybrids and BEVs would have caused.
  • In 2020, California (No. 1 in our revenue loss rankings) mandated that all new vehicles sold in the state must be BEVs by 2035, which will make the state’s gas tax more or less obsolete. Since the auto market often follows California’s lead, this change will have national ramifications — potentially tanking every other state’s gas tax numbers by sheer force of its market influence.
  • State Solutions to the Gas Tax Gap

Currently, EVs only cost about $175 million in lost federal gas tax revenues per year, but that number could explode to $4.5 billion in a single decade. That’s not even including the cumulative $25 billion in losses we’ve projected at the state level. Here are lawmakers’ three most commonly proposed solutions:

Electric Vehicle Fees

More than half of states (including many of those losing the most gas tax revenue) now add special fees to register a BEV, a PHEV, or even an HEV. We’ve ranked them from highest to lowest.

BEV, PHEV, and HEV Fees vs. Average Gas Taxes by State

We discovered that you’ll currently pay less for BEV fees than for gas taxes in many states (with the exception of Alabama). If these states don’t raise their fees or adopt a new tax system, deficits will grow with each BEV sold.

 

Outside of California, we found there already seems to be an inverse relationship between BEV adoption and state gasoline expenditures. North Dakota and Wyoming have the fewest and second-fewest BEVs in America respectively, while they spend the most and second most on gasoline per capita. Meanwhile, some of the states with the most BEVs (New York, Illinois, Florida, Georgia) spend the least on gasoline per capita.

 

Are higher registration fees for alternative fuel vehicles the best way to address budget shortfalls? Are they fair? Let’s explore the pros and cons.

Pros:

  • BEV, PHEV, and HEV drivers now pay less for roads through gas taxes, but they use roads at the same rate as other drivers.
  • Unlike other solutions, such as a VMT, special registration fees don’t require implementing a complex new system, as drivers already pay a standard fee.

Cons:

  • The federal government provides a tax incentive for buying BEVs, so charging extra at the state level could be interpreted as sending mixed signals.
  • A high flat fee “can be harder for households to cover than fuel taxes or other revenue options that are spread over time,” according to the North Carolina Department of Transportation.
  • These fees could dissuade consumers from making the environmentally friendly choice. “It’s punishing people and families who are seeking to reduce their carbon footprint,” objects the Sierra Club.

Alternative Fuel Taxes

From 2018 to 2020, the number of charging stations across the U.S. grew from approximately 70,000 to 100,000. Because of this growth in public charging stations, many states are attempting to levy a point-of-sale excise tax like gas stations.

Pennsylvania already taxes BEV fuel on a gallon-equivalent basis, and Iowa will implement a per-kWh excise tax in 2023 along with a hydrogen fuel tax. Minnesota has explored the idea as well. Here are some pros and cons of the alternate fuel tax.

 

Pros:

  • A tax based on kilowatt-hours (kWh) instead of gallons would be a familiar and politically uncontroversial concept.

Cons:

  • Many BEV owners usually charge their vehicles at home, not at stations, and they currently receive a tax credit for doing so. A new tax would again send mixed signals.

Vehicle Miles Traveled Tax

Gas taxes are based on how much fuel you burn. The VMT would tax you based on how far you go. It’s a huge change from the current system, but lawmakers from both parties — at the federal and state levels — believe it’s the best and fairest way to future-proof transportation budgets.

 

A dozen states are now studying the VMT. Oregon’s pilot program, called OReGO, is the furthest along, with thousands of drivers currently participating. Oregon charges drivers in the program $0.018 per mile. The average Oregon driver travels 8,900 miles per year, which adds up to $160 annually in VMT taxes. When we factor in Oregon’s $110 BEV fee, the total ($270) is equivalent to the amount Oregonians pay per capita in gas tax. The math checks out perfectly.

 

VMT may seem like a good middle ground between registration fees, alternate fuel taxes, and gas taxes, but it’s not without its drawbacks. We put together the following pros and cons of a state VMT so you can see the whole picture.

 

Pros:

  • The Congressional Budget Office has proposed that GPS technology might be used for automatic congestion pricing, which they estimate could lower highway funding needs by about 30 percent.
  • BEVs, PHEVs, HEVs, and traditional vehicles would be charged on the same system. Nobody would have to pay extra.
  • Mileage is a better indicator than gallons (or kWh) of how much stress each individual driver is putting on the public roads. Vehicle weight could be factored in too.

Cons:

  • Privacy groups worry about how GPS data will be stored, deleted, and even sold.
  • Like higher registration fees, the VMT would force greener drivers to pay more than they do now by an estimated $100. Gas guzzlers might even pay less than they do now.
  • States will need to coordinate (or use a national system) for tracking and taxing cross-country travel.

Conclusion

For many years, gas taxes allowed state governments to pay for most or all transportation needs. However, this condition is no longer true, as gas tax is failing to cover infrastructure costs in 46 states. With BEVs skyrocketing in popularity, this situation will grow far more dire, costing states up to $25 billion by the end of the decade, according to our extensive research and forward projections.

 

A new funding mechanism has become necessary. The proposed mileage tax is the most likely long-term solution, but it will make alternative fuel vehicles more expensive to drive at a moment of environmental crisis.

 

Ultimately, each state will need to decide for itself how to balance its transportation budget in the years ahead, but the price of doing nothing would be the highest of all.

Methodology and Data

In order to generate our state gas tax revenue loss projections, we made the following calculations using these authoritative sources of data:

  • We collected the current and historical BEV, PHEV, and HEV sales per state from the Alliance for Automotive Innovation (Auto Innovators). We then utilized EV sales forecasts from EVAdoption to project the number of registered EVs in each category per state through 2030. We combined these figures with EV fee listings from the National Conference of State Legislatures to determine the revenue generated from potential EVs in each state through 2030.
  • We projected the number of drivers, miles driven, and average miles per gallon for light-duty vehicles in each state through 2030 by applying triple exponential smoothing (TES) to historical figures derived from the U.S. Department of Transportation’s Federal Highway Administration (FHWA) and the Bureau of Transportation Statistics (BTS). Using these numbers, we calculated the gallons used per capita in each state by dividing the vehicle miles traveled per capita by the average miles per gallon per forecast year. We multiplied these figures by current state gas tax rates, obtained from InMyArea.com original research for our National State Tax Map, to determine the gas tax paid per capita by drivers in each state.
  • We finally established the revenue loss per state due to EVs through 2030 by finding the difference between gas tax revenue per capita and EV fee revenue per capita and multiplying that result by the number of sales for BEVs, PHEVs, and HEVs. We totaled these figures across categories for 2021 to 2025 and 2021 to 2030 to arrive at the revenue loss projections up to 2025 and 2030. We chose to limit the effects of hybrid fees by only considering 50 percent of the potential loss from that category, as HEVs still partially contribute to state gas taxes.
  • We also pulled information and insights from following reputable organizations not mentioned above: U.S. Department of Energy (DOE), U.S. Bureau of Labor Statistics (BLS), U.S. Census Bureau, Congressional Budget Office (CBO), U.S. Energy Information Administration (EIA), North Carolina Department of Transportation (NCDOT), NC Clean Energy Technology Center (NCCETC), National Resources Defense Council (NRDC), Sierra Club, Green Car Reports, Tax Foundation, and Guidehouse Insights.

Technology changes every day and with it, so does the mind of consumers.

InMyArea Research is composed of industry analysts and data scientists. We conduct studies on internet usage, TV and streaming services viewership and how consumers make decisions when it comes to their home services. We also study internet connectivity, the digital divide and how it impacts students, low-income consumers, rural consumers and veterans.

This article originally appeared on InMyArea.com and was syndicated by MediaFeed.org.

More from MediaFeed:

These states will actually pay you to buy a Tesla

 

Most people believe that a Tesla is out of their price range. With prices starting at $35,000 and going up to $124,000, the brand is definitely in the aspirational range for a lot of people. However, many states offer rebates and other incentives to buy electric vehicles, or EVs. The federal government also offers an income tax credit of up to 26% for green cars that run on alternative fuels, as well as for home utilities.

Some states even give you an additional discount for cars with solar and energy storage. If you’re in the market for a new car, and you’d like to green your drive, you can find out here if your state offers discounts for buying an electric or alternative fuel vehicle. Note that discounts and rebates are subject to change.

 

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Arizona will give electric car drivers a reduced vehicle license tax and access to carpool lanes. You can receive incentives for going green in your home, such as getting up to $1,000 in state tax credits for installing solar panels. There’s also a tax credit of up to $75 for installing electric vehicle supply equipment, or EVSE, in your house or housing unit. Most commonly, this means having an electric car charging station at your home.

 

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California gives $2,000 to $4,500 in rebates for buying a Tesla Model 3 and Model Y, depending on your income. The $1,500 California Clean Fuel Reward is available for anyone who registers a new electric vehicle in the state.

California also offers Plug-In Hybrid and Zero Emission Light-Duty Vehicle Rebates. The rebates are offered for purchasing or leasing of American Expedition Vehicles, or AEVs, as well as plug-in hybrid electric vehicles, or PHEVs. Battery electric vehicles and fuel cell electric vehicles are eligible as well.

If you bought an eligible car before March 28, 2016, you can get $5,000 in rebates. After that date, the rebate will be based on your annual income.  San Joaquin Valley residents can get up to $3,000 in rebates for EVs by using the Alternative Fuel and Advanced Vehicle Rebate.

Under the California Self-Generation Incentive Program (SGIP), anyone who buys or installs solar utilities may be eligible for additional incentives. That includes Tesla’s Powerwall.

 

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Colorado offers a tax credit of up to $4,000 for purchasing a new EV and $2,000 for leasing one. You could also be eligible for a tax credit of $5,000 for buying or converting a vehicle to electric or $2,500 for leasing a light-duty EV or PHEV.

Colorado also has various incentives for select solar utilities.

 

 

 

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Connecticut has a $1,500 rebate for new electric vehicles that cost under $42,000. There’s also rebates for electric or hybrid vehicles based off battery capacity. You can get a $3,000 rebate for a batter capacity greater than 18kWh, $1,500 for 10kWh to 18kWh, and $750 for less than 10kWh.

You can also get exemptions for state emissions tests and a reduced vehicle registration fee. For various solar utilities, you can get a discount of up to $300 per kW PTC.

 

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Delaware gives a $2,500 rebate for new EVs under $60,000 and $500 for having a home charging station. The Electric Vehicle Supply Equipment (EVSE) Rebates program  can cover half the cost of building a station at home and 75% of the cost of building one commercially.

The state also offers solar rebates for select utilities.

 

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Florida residents and business owners may get financial assistance for building a home charging station depending on their eligibility.

 

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Georgia’s Electric Vehicle Supply Equipment (EVSE) Tax Credit gives eligible businesses an income tax credit for buying or leasing electronic or hybrid vehicles.

 

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Hawaii will give you exclusive carpool lane access and a reduced EV charging rate to buy an electric car. You can also get a tax credit for solar utilities equal to either 35% of the system cost or $5,000 per 5 kilowatt, whichever cost is lesser.

 

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Idaho offers a state exemption from vehicle inspection for anyone purchasing or leasing an electric vehicle. You may also be eligible for other discounts under its vehicle maintenance program.

 

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Illinois offers exmeptions for state emissions tests for electric cars, plus reduced registration fees. Under the Electric Vehicle Supply Equipment (EVSE) Rebates, you can get half the costs of installing vehicle charging equipment at your home.

You can also earn Solar Renewable Energy Credits (SREC) for various green utilities and energy savings measures. The credits can be traded in for additional discounts. You can get a $1,000 discount per kilowatt on the cash or loan price of solar panels. If you invest in a solar roof, you can also receive $860 per kilowatt on the roof’s cash or loan price.

 

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Louisiana offers a $2,500 income tax credit for buying or leasing a hybrid or electric car.

 

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Maine residents may be eligible for a $2,000 rebate for new electric vehicles under $50,000.

 

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Maryland will give you access to hybrid and electric lanes and an emissions testing exemption when you switch to an electric car. There are additional tax credits of up to $3,000 available for buying a plug-in electric car. You can also get a $700 rebate on wall connectors and installation of a charging station.

The state gives a $1,000 per system rebate for solar energy and utilities.

 

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Massachusetts gives residents a $2,500 rebate for new vehicles costing less than $50,000. You can get up to $1,000 in state tax credits for using solar energy. The state also offers various incentives for using solar utilities and the Tesla Powerwall.

 

 

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Montana will give you a tax credit of up to half the price for equipment and labor costs if you convert your vehicle to an alternative fuel source, including electric.

 

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Nevada gives its residents a reduced rate for charging electric vehicles. You can also get free alternative fuel vehicle parking and an exemption from the state’s emissions testing requirement.

 

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New Jersey gives up to $5,000 in rebates for buying or leasing a new alternative fuel vehicle that costs less than $55,000. You’ll also get a sales tax exemption if you bought the vehicle in New Jersey.

Solar utilities can earn you up to $720 per kilowatt on the price of installing solar panels or $600 off a solar roof.

 

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New York offers a $500 rebate for new vehicles with a base price over $60,000, and $2,000 for those under $60,000. You’ll also get an exemption from the state’s emissions testing requirement.

If you use solar energy or solar utilities, you can get up to $350 per kilowatt in rebates and up to $5,000 in state tax credits.

 

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North Carolina offers a state emissions testing exemption and car pool lane access to electric and alternative fuel vehicles.

 

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Oregon offer a rebate of $2,500 for purchase or lease of new or used Tesla cars. You can get a tax credit of 25% for any alternative fuel infrastructure project, including building an electric charging station.

Solar energy and utilities can also earn you a rebate of $300 per kilowatt up to $2,400.

 

 

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Pennsylvania residents can get a rebate for all-electric and plug-in hybrid cars. The rebates vary by the energy efficiency of the vehicle.

 

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Rhode Island alternative fuel vehicle owners are exempt from the state’s emission testing requirements. You’ll also be able to earn up to $100 per kilowatt off the cash or loan price of solar panels and $80 per kilowatt off the cash or loan price of a solar roof.

 

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Texas gives $2,500 vehicle replacement vouchers for qualified residents to buy a hybrid or battery-electric car.

 

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Utah gives a tax credit for heavy-duty electric vehicles, which maxed out at $15,000 this year. To qualify, at least half of the car’s miles must be driven in the state.

 

 

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Vermont gives a rebate based on your income when you buy or lease an electric car under $40,000. The rebate maxes out at $5,000.

If you use solar appliances or solar power, you can get a 2 cent per kilowatt hour incentive for 10 years.

 

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Washington has a sales tax exemption for vehicles that cost up to $32,000.

 

 

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Washington, D.C. exempts alternative fuel vehicles from excise tax and offers a reduced vehicle registration fee. You can also get a tax credit for half the price of installing a home charging station that costs up to $1,000.

 

Solar power uses can earn $930 per kilowatt off the price of solar panels and $780 for a solar roof.

 

 

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Wisconsin’s Alternative Fuel Tax Refund for Taxis allows vehicles that transport passengers to be reimbursed for the paid amount of the Wisconsin state fuel tax. Refund claims must be filed within one year of the fuel purchase date.

This article was produced and syndicated by MediaFeed.org.

 

 

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Featured Image Credit: Scharfsinn86/istockphoto.

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