Mileage-Based User Fee Winners and Losers - RAND Corporation

Calculating Distributional Implications
Four metrics are used to evaluate the equity implications of the MBUF alternatives:
• The change in annual taxes,
• The Suits index (Suits 1977; West 2005),
• The change in consumer surplus (McMullen, Zhang, and Nakahara 2010; Weatherford
2011),
• The change in welfare (Parry et al. 2005).
This section describes how the metrics are calculated and discusses how they are used in the
comparative distributional analysis in Chapter 5.
Calculating the Change in Annual Taxes
Fuel taxes are directly levied on the distributors of motor fuels at the “rack.” While
households do not directly pay fuel taxes, research has shown that the fuel tax is completely passed
on to consumers (Alm, Sennoga, and Skidmore 2009). 47 In contrast, MBUFs will be directly levied
on consumers. Households could pass on some of their tax burden to firms should consumers
demand lower prices and higher wages to offset a tax increase. Fuel taxes paid by firms in the
transport of goods and the provision of services could also be partially passed on to consumers in
the form of higher prices. Again, it is unclear whether the change from fuel taxes to MBUFs will
impact the incidence of the tax. It is reasonable and convenient to assume that the household’s
annual fuel taxes are equal to the total number of gallons of fuel consumed multiplied by the fuel
tax rate. Likewise, the household’s annual MBUF tax is equal to the total annual VMT multiplied by
the MBUF rate in each alternative. The change in annual taxes are then calculated for each
household by subtracting current annual fuel taxes from the annual fuel and MBUF taxes borne
under each of the policy options.
The change in taxes is therefore a relatively uncomplicated, accessible, and broadly appealing
metric of the equity implications of these MBUF alternatives. Many elected, appointed and senior
civil service decision makers and advocates will first want to know how a proposed change in tax
policy increases or decreases their constituents’ and customers’ annual taxes.
In addition to reporting the change in taxes, the results also report the percentage change
and the change in taxes as a percent of income. These metrics are more relevant to understanding
equity implications than the dollar change in annual taxes because they place the dollar amount in an
appropriate context. The percent change in taxes as a share of income is important with respect to
the household’s or group’s ability to pay, for example. However, the Suits index, described and
discussed below, is easier to interpret.
The change in taxes is disaggregated for key groups of households, including:
• Income groups (categorized by thirds and tenths of the population rank ordered by
income),
• Household life cycle (retired households and households with children),
• Community types (households categorized into groups, such as urban, suburban and rural,
based on the “contextual” population density of the community in which they live
(McGuckin 2011)).
47 The topic of the incidence of fuel taxes was more thoroughly discussed in Chapter 2.
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