Should Electric Vehicles Be Taxed or Subsidized?

The rise of electric vehicles (EVs) across the U.S., inflation, and improved fuel efficiency in gas-powered vehicles have started to eat away at the gas tax used to help fund our roads, bridges, and highways. 

Of these trends, the transition to electric vehicles (EVs) has had one of the largest impacts on state transportation budgets.   

In an effort to decarbonize our energy mix, policymakers spurred EV adoption through incentives and direct subsidies and continue to do so, most recently and broadly through federal laws like the IIJA (injecting $7.5 billion to help states build a national EV charging networks) and IRA (tax credits for new and used EVs). 

Individual states also offer their own incentives for EV buyers. However, policymakers are now facing a shrinking budget to fund the roads and bridges.

EVs skip the gas pump altogether and pay zero gas taxes and in response, most states have enacted special registration fees for EVs to make up the difference.

Currently, 38 states have enacted new registration fees for EVs - ranging  from $50 per year in Colorado, Hawaii, and South Dakota, to $290 in New Jersey. 

Most recently, Vermont Gov. Phil Scott (R) signed a bill to charge EV drivers an additional $89 registration fee starting next year. But as Sen. Tanya Vyhovsky (D) said during the debate over the fee in Vermont, adding a new fee for an activity the state wants to encourage could be counterproductive. 

Although states have embraced new registration fees for EVs as a way to make up lost gas tax revenue, the dream of completely replacing the gas tax as the primary funder of the transportation infrastructure is still incomplete. 

Potential options include a miles traveled fee and even congestion pricing systems in large urban areas. 

The PoliciPro team is monitoring the status of EV-related legislation and regulations.

If you want to get regular updates on transportation policy, email us at contact@policipro.com.