Taxes and fuel economy

Most people don’t normally think of taxes and fuel economy in the same sentence. But Kenny Vieth, president and senior analyst at ACT Research, offered an interesting connection when speaking at a recent NACFE workshop during the Green Truck Summit in Indianapolis.

First Vieth laid out the facts: The Federal Excise Tax (FET) on trucks adds 12% to the purchase price of every new Class 7 and 8 vehicle. Truck prices have increased about $30,000 in order to cover the increased cost of meeting emissions regulations since 2004. This has added about $3,600 in FET to each new truck sale.

Kyle Treadway, dealer principal, Kenworth Sales Co., reminds us that FET, which was created 100 years ago to help fund the country’s WW1 efforts.  It is now used to fund the federal Highway Trust Fund and the industry realizes that since we use the roads, we need to pay for them. Simply repealing FET is not an option; it must be replaced by some other funding mechanism.

The American Truck Dealers association has been advocating for several years replacing FET with higher fuel tax, Treadway says. This would spread the cost out so newer and cleaner trucks are affordable but truck users would still pay their fair share for using the nation’s highways, roads and bridges.

Lump sum FET payments discourage fleets from buying new equipment. It’s as simple as that. Some might argue that it penalizes fleets that regularly invest in new, more fuel-efficient technology.

Vieth proposes a carrot and stick approach to the problem. To encourage the adoption of fuel-efficient vehicles he advocates eliminating FET (the carrot).  Then he suggests offsetting the revenue loss from doing this by charging higher diesel fuel taxes (the stick).

Think about this: if FET were eliminated truck buyers would immediately get an $18,000 discount (12% FET on a $150,000 on a tractor-trailer combination).  Then think about what would happen if they invested even half of that amount in technologies that improve fuel efficiency. Wow!

I know details would have to be worked out because trucks with bettered fuel economy would end up paying lower taxes with increasing miles of wear and tear.

Folks smarter than me can work out the details but I think the idea is at least worth thinking about because we would be favoring those fleets who are leaders in purchasing fuel efficient trucks while penalizing those who continue to operate vehicles with lower mpgs.

Think about Kenny’s idea and share your insights with me and others. Perhaps together we can get this considered so it works best for our roads, our fleets and freight efficiency.

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