Moving to a VMT Tax

[HighwayStar]

Where I was going with my thought was that with a VMT, the cost of the VMT will be passed along to the consumers of goods and services that rely on transport across the roads.  With the exception of my aforementioned (and admittedly improbable) hermit, everyone ends up paying in proportion to their use of the roads, be it direct or indirect....just as they do for the costs of railroads, or blue- or brown-water shipping, and just as they ought to for transport by air.

Now, where I can see some criticism for the concept is the concern that it would place additional demands on those on the lower rungs of society, who can least afford additional demands.  That is a valid concern for many things tax- and policy-related, one that ought to be addressed.  The fact that it needs to be addressed shouldn't be a reason to not seek better linkages between costs of public services and the users of those services.

Right, but I am saying that is not how a VMT would actually work. Where the burden of a tax falls depends on elasticity of demand. Perfectly inelastic demand means it all falls on the consumer. Perfectly elastic demand and it all falls on the producer. And in reality neither is realistic, as elasticity is between the two extremes. So some of the cost ends up borne by producers rather than the end user.
That issue in itself is not a decisive one, but its a key point to keep the economics right.

What is a problem is the fact that roads have a large positive externalities. Let me put forth a comparison of examples.

Hamburgers are a private good, they are rival and excludable. Also, the utility from a hambruger is confined to whoever eats it. So if Wimpy buys a hamburger and pays the full cost of $1 to McDonalds for it, and that $1 represents the full cost of getting it to him (labor, capital, etc) then we have aligned those paying with those benefiting.

Education is also a private service, its both rival and excludable. However, the utility of it does not fall solely on the one reviving it. Sure, they may enjoy it and later get a better job because of it, but the full impact of having someone who knows how to do X is so widely diffused in the economy that it is not going to be fully reflected in his salary and thus a positive externality exists. Basically some of the utility is being enjoyed by 3rd parties who didn't have to pay anything.

Roads are the same problem. If we charge VMT, then some of those second order benefits might be captured, but not all of them. If I order a pizza the cost of the pizza will have some of the cost of VMT built into the price, although due to the above elasticity issue not all of the cost passes on to me. But the broader positive externalities of roads (allowing for more economic efficiency, better emergency response, lower air pollution, reduced energy consumption, civil defense, etc) will never be captured by the VMT. And thus it fails because it is a classic example of positive externalities resulting in underproduction of a good or service.

Most people are more familiar with negative externalities resulting in over production, but it follows that positive externalities suffer from under production.