Mileage-Based User Fee Winners and Losers - RAND Corporation

4. METHODOLOGY
OVERVIEW
This dissertation analyzes the distributional implications, and other equity considerations, of
adopting alternative MBUF policies. The first phase of the analysis estimates changes in household
VMT, fuel consumption, tax, and welfare for several federal and state MBUF policy options. The
distributional implications of these are compared to current fuel tax policy and to each other. The
various options, discussed in detail in the following section of this chapter, were selected to examine
how the distributional implications of MBUFs may vary with the rate level and rate structure.
The second phase of the analysis projects the distributional implications of several policy
options over years 2015 to 2030 under various scenarios. This part of the study examines how the
distributional implications might change under alternative future macroeconomic conditions and
future improvements in vehicle fuel economy. These scenarios are based on EIA assumptions and
projections.
DISTRIBUTIONAL ANALYSIS OF ALTERNATIVES
This section describes the methodological approach for estimating and then comparing the
distributional implications, and other equity considerations, of various MBUF policy options. Eight
tax policies are analyzed. Each alternative increases or decreases the per-mile cost of driving,
hereafter referred to as the “price” per mile of driving, for each household. The fitted model,
described in Chapter 3, is used to predict a new annual household VMT given the new prices for
each alternative. Changes in the annual tax, consumer surplus, and welfare of each household are
calculated based on these predictions of VMT. The changes are analyzed to characterize the
potential distributional implications of adopting an MBUF.
Alternative Tax Policies
These eight tax policy options alter the price per mile of travel for each household with
marginal impacts on annual household VMT and tax. Each of the policy options explained below
increases or decreases the price per mile of travel for each household based on the fuel efficiency of
their household’s vehicles. The price per mile variable in the fitted model is recalculated and then the
model is used to estimate the changes in annual VMT, tax and consumer surplus. In addition, the net
change in national VMT, tax revenue, tax administration, collection, and enforcement costs, and
travel related externalities are also calculated for each of the policy options.
Equivalent Flat Rate MBUFs
The first three policy options examined in this study are state and federal “flat-rate” MBUFs
set at rates that are equivalent to the current state and federal fuel taxes. 36 The “equivalent” rate is
calculated for each jurisdiction by dividing total gasoline tax revenue by total VMT. This approach
differs slightly from a prior study by Weatherford (2011) that calculated a perfectly revenue-neutral
tax rate, but it is consistent with other related research (McMullen, Zhang, and Nakahara 2010). 37
These equivalent flat-rate MBUFs allow the distributional implications of replacing the per-gallon
36 A “flat-rate” MBUF means that all vehicles are charged the same rate per mile. Freight trucks are outside the research scope but it is
likely that they would be subject to separate policies following current practice.
37 The equivalent rate method differs from the revenue-neutral method in that total revenue collected may slightly increase or decrease
with net changes in total VMT and fuel consumption. The equivalent tax rate is also much easier to calculate than the revenueneutral
tax rate. In this study, annual federal tax revenue, ignoring any change in collection costs, is reduced by $25.1 million; 0.12
percent of the estimated $21.8 billion collected from households in 2008-09.
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