No good deed goes unpunished. And how true that is when the government, at any level, gets involved. The federal government has a full-on press pushing Americans to get rid of their gas cars and trucks and embrace the electric vehicle, although it appears there’s not a rush to be the first one on the block with an EV. Currently, there are twice as many electric vehicles sitting on dealer lots as there are gas-powered vehicles.

More people are indeed making the move to EVs. But as they do, it’s creating a problem for the federal government and states that are likely to punish the people who have done what the government wants them to do.

As more drivers plug their cars into the wall, the amount of gas sold at the pumps is going down, and in turn, so are the number of dollars states and the feds collect in gas taxes. That’s why eight states are considering bills that would modify existing programs or establish new ones to tax drivers of electric vehicles based on the number of miles they drive.

This is not the first time citizens have done what a government asked and then saw more money come out of their pocket because another government entity wasn’t making as much as before.

The city of Charlotte, North Carolina is just one example. In 2008, the city was experiencing a drought. The city asked its residents to conserve water—and they did. But because people were using less, their water bills were lower and the Charlotte-Mecklenburg Utilities Department didn’t have enough money, so it raised rates to make up the shortfall. One business owner said it was like getting blackmailed.

In 2014, Charlotte did the same thing all over again. At that time, Charlotte Councilman Greg Phipps said, “People say conserve water, and you conserve water. And the next thing you know you get your bill—boom—there’s an increase in the stormwater fee and water fees and such.”

Eight states—Hawaii, Massachusetts, Minnesota, Tennessee, Utah, Vermont, Virginia, and Washington have considered imposing a mileage tax on EVs.

Under some of the current programs, the state installs devices in vehicles to measure the miles driven. Other programs rely on drivers to report the miles they’ve driven, or track miles through year-over-year odometer readings when drivers renew their registrations. Under all states’ existing laws, vehicle owners voluntarily sign up for the programs.

Utah revised its law, setting its mileage tax at a penny per mile beginning in 2023, then raising it to 1.25 cents a mile in 2026 and 1.5 cents in 2032. Beginning in 2024, state tax authorities will be able to adjust the rate for inflation.

According to the Congressional Budget Office, without a change in tax formulas, the current federal and state gasoline taxes will fail to meet the nation’s infrastructure needs. The CBO projects that if the 18.4-cent per gallon federal gas tax remains the same, and infrastructure spending increases at the average projected rate of inflation, the federal Highway Trust Fund will come up about $140 billion short by 2031. The federal gas tax hasn’t been raised since 1993.

The National Conference of State Legislatures says at least four states — Iowa, Kentucky, Oklahoma, and Pennsylvania — are trying to recoup lost fuel tax revenue from a different angle: taxing the electricity used at public charging stations.

Iowa levies a 2.6 cents-per-kilowatt hour tax on electricity delivered to an electric vehicle at a public station. Kentucky’s tax is 6 cents per kilowatt hour.

The discussion about recouping lost gas tax revenue is just beginning. More taxes are coming.

To plug in or not to plug in, that is the question.

 

 

Disclaimer

This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].