We wrote not long ago about the various negative externalities produced by driving — congestion, pollution, accident risk, etc. — and how pay-as-you-drive insurance might help impose the true cost of driving on each driver.
Now a reader named Larry Holt, the director of research of the Birmingham (Alabama) Regional Chamber of Commerce, writes in with an interesting point about a quiet incentive that encourages people to put on the miles:
I traveled to Atlanta last week for a conference, and as it’s nearby, I simply drove. So when I got back, I of course filled out my mileage report, and did pretty well: $159. We, like many other companies pay according to the I.R.S. mileage rates: 50.5 cents a mile.
It struck me though how much this flat reimbursement subsidizes our driving choices somewhat similarly to the free parking hypotheses.
It’s interesting that while at the same time the stated policy of the U.S. Highway Administration is to reduce congestion, you have another arm of the government, the I.R.S., continually bumping up the mileage rate. Here’s a link showing that it’s gone up from 36.5 cents since 2002.
One side note: With just about every U.S. airline in trouble and therefore resorting to cutting routes and raising fees, people will be even further incentivized to take long driving trips — even while gas prices continue to rise (though not nearly high enough for guys like this).
And here’s another case of mixed messages on auto use, or at least mixed incentives: The U.S. Department of Transportation has issued a press release saying that Americans have started to drive considerably fewer miles than before.
You’d think this would be mostly good news, right? Not quite: “That Americans are driving less underscores the challenges facing the Highway Trust Fund and its reliance on the federal gasoline excise tax,” said Acting Federal Highway Administrator Jim Ray.
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Most companies use the full IRS mileage rate to reimburse employees because the IRS has determined the TOTAL cost of driving 1 mile is 50.5 cents. What many fail to realize, is the reimbursement isn’t just compensation for gas, its also intended to cover the share of all fixed and variable costs associated with these miles. Many companies (and non-profits) use a reduced rate, because they feel the IRS prescribed rate is too high. Many employees think this is easy money, they fail to see that while 50.5 cents a mile seems awesome, when you’re putting an extra 10,000 miles a year on your new BMW, depreciation and maintenance is going to catch up with you sooner or later.
My Dad has cleverly beaten the system. He puts most of his work mileage on his motorcycle. Better fuel economy, cheaper maintenance, less depreciation, cheaper insurance.
@Gary
But does that cost factor in the negative externalities of “congestion, pollution, accident risk, etc.”?
Ultimately, this all comes down to land use choices, and again there are federal programs that are working against each other. Most driving is done during a commute, and long commutes are the norm. The incentives to live in the outer ring suburbs are too great: cheap land with fewer zoning restrictions, lower insurance rates, better schools, historical and current federal policies that encourage suburban growth, etc.
It’s a gross simplification, but: (Cost of Living in Suburbs at a fixed standard) + (Cost of commuting)
Transportation expends energy. At the moment, since we do not have solar- or fusion-powered cars, and sail-cars won’t be much use, that means we cannot get around without burning fossil fuels. Mass transit is nice, but it still requires the burning of fossil fuels.
Currently, however, we have no choice BUT to move around. To our jobs, to the store, etc.
I’m getting the idea that the only solution that some people will find acceptable, is to abandon everything and return to a subsistence agrarian economy. This way we don’t have to go anywhere, we just walk outside, till the soil and live on whatever we can grow in our yards. We can use beasts of burden in the place of powered farm machinery (tractors, etc.). Transportation then becomes unnecessary.
Of course, nearly all industry and commerce would grind to a halt. We probably would no longer need electricity or other utilities, which is just as well since a lot of fossil fuels are burned in the process of operating those.
I have no idea how this could possibly support a nation of 300 million, but if eliminating the burning of fossil fuels is the goal, then that’s the way we have to go. Nothing else will cut it.
I think Mr. Holt has a point. I understand depreciation and wear and tear on my car. And I understand how the IRS determines the reimbursement rate. But I drive a Prius and live in Houston. I make one trip to downtown and back, barely move the needle on the gas gauge, and the reimbursement essentially fills my tank and keeps me going for a month.
I don’t see that the IRS has much choice in how they set the rate. Maybe as the overall fuel economy of the national fleet increases they can use that to curb the upward push created by increasing gas prices?
I love the mileage reimbursement. It probably costs me about 30 cents a mile to drive my Corolla, so every mile I drive for work gets me 20 cents of tax-free income. Other people at my company think the same way. Not surprisingly, carpooling is unheard of around here.
@DJH Long term — and short term where possible — we need to arrange our residences, workplaces, retail establishments in closer proximity. Given the current world population – subsistence agriculture is a red herring.
Building communities that are closely connected and accessible by means other than private internal combustion engine vehicles could be a big contribution to energy and environmental problems.
Right now people are making these choices — buying homes in urban areas, where walking bicycling and transit make sense — and letting sprawling suburbs languish.
@Gary – Did he factor in the added cost created by the increased risk of driving a motorcycle?