MauledAgain

Today, reader Morris directed my attention to a proposal by the Truckload Carriers Association for a "Gallons-Based User Fee” or GBUF. Though described as a “simple, common-sense update to the current fuel tax,” it is nothing more than an increase in the existing federal fuel tax along with an “annual registration fee for electric vehicles.” That fee would be $250 annually for electric vehicles and $100 annually for hybrid vehicles. The proposal also includes repeal of the federal 12 percent excise tax on new trucks and trailers. The proponents of GBUF make two arguments. First, they argue that the “federal fuel tax is the most efficient and cost-effective way to fund highway improvements.” Second, they argue that the GBUF “does not require a new collection system or a costly bureaucracy.” They don’t mention that they are not so subtly changing the designation of the revenue from a tax to a user fee, perhaps to make it appear new or perhaps, and more likely, to avoid accusations of supporting a tax increase, something that finds little favor these days.

The proponents make no mention of the fact that some states have already implemented the mileage-based road fee in some form, whether as a pilot program, a voluntary opt-in arrangement, or some similar plan. Though the mileage-based road fee does not require a costly bureaucracy because it would rely on existing vehicle and internet technology to calculate and impose the fee, it easily could be adapted so that states use their fee collection system to collect revenue on behalf of the federal government and remit those collections to the Treasury.

I wonder if one of the reasons the Truckload Carriers Association prefers raising the fuel tax instead of opting for a more accurate mileage-based road fee is that the road fee takes into account the weight of the vehicle, because the heavier the vehicle the more damage to the roads, bridges, and tunnels. For example, compare a 10,000 pound diesel powered box truck with an 80,000 pound diesel powered tractor trailer. The former gets between 13 to 20 miles per gallon whereas the latter gets between 6 to 8 miles per gallon. So to go the same distance of 1000 miles, the tractor-trailer would use between 125 to 167 gallons whereas the box truck would use between 50 and 77 gallons. The tractor trailer would use between 1.6 to 3.3 times as much fuel to cover that distance, and would pay between 1.6 to 3.3 times as much fuel tax. Yet the tractor trailer does far more than 1.6 to 3.3 times as much damage to the roads, bridges, and tunnels. According to the GAO’s Truck Weight and Its Effect on Highways, an 80,000 pound tractor trailer “has the same impact on an interstate highway as 9,600 automobiles,” and “a truck axle carrying 18,000 pounds is only 9 times heavier than a 2,000-pound automobile axle, it does 5,000 times more damage.” In effect, the current fuel tax system, no matter the amount of the per-gallon tax, causes lighter weight vehicles to subsidize a significant portion of the damage done by heavier weight vehicles. The mileage-based road fee, with rates set to match vehicle weights, ameliorates this funding imbalance.

Just as bad, a flat fee for electric and hybrid vehicles presupposes that those vehicles do the same damage to highway infrastructure when, in fact, the miles that each of those vehicles are driven can vary from as little as 2,000 annually to as much as 30,000 or more annually. The mileage-based road fee takes those differences into account. The flat fee does not. On top of this flaw, though the GBUF proponents claim that their proposal “does not require a new collection system or a costly bureaucracy,” it indeed would require a new federal mechanism to impose those flat fees.

In conclusion, though raising the federal fuel tax is better for preservation of federally supported highway infrastructure than doing nothing, it pales in comparison to implementing a mileage-based road fee. Fairness and efficiency weigh in favor of a permanent remediation rather than the seemingly easier but eventually ineffective band-aid of raising a 20th century tax mechanism that doesn’t function well in a 21st century world.

This particular television court show was episode 176 of season 10 of Hot Bench, which originally aired on 19 August 2024. I could not find the actual episode online other than behind some unfamiliar pay sites.

The plaintiff and defendant worked for the same contractor. The defendant did not want to fill out a W-9 for the contractor because, as the defendant admitted, he was in arrears on child support and did not want the IRS to know he had wages that could be used to pay the child support obligations.

So the contractor, the plaintiff, and the defendant entered into an arrangement that made the plaintiff, in effect, a subcontractor. Under the arrangement, the contractor would remit to the plaintiff the wages that would have been paid to the defendant, and the plaintiff would pay that amount to the defendant. The plaintiff made the payments in cash because the defendant refused to accept a check.

The plaintiff had three other employees. Those employees filled out W-9 forms delivered to the plaintiff, and the plaintiff paid those employees with checks.

According to the plaintiff, a fourth W-9, in a name other than the defendant’s, was included with the other three W-9 forms, when the plaintiff’s tax returns were prepared by the plaintiff’s tax return preparer. The defendant denied filling out a W-9 form. When asked about this W-9 form, the plaintiff testified he had not looked at it and did not realize it had a name other than the defendant’s name. One of the judges asked the plaintiff if it was not strange that the defendant, who refused to fill out a W-9 for the contractor, would have filled out a W-9 form for the plaintiff.

The IRS and the California Franchise Tax Board sent notices to the plaintiff that taxes had not been remitted for the payments made to the defendant. The plaintiff did not have those documents to present as evidence for the explanations provided by those two agencies. The IRS and the Franchise Tax Board levied on the plaintiff’s bank account. The plaintiff sued the defendant, seeking reimbursement from the defendant.

One judge noted that the failure to bring the documents issued by the agencies made it difficult to conclude that the amounts taken were on account of the payments made to the defendant by the plaintiff. The court found the plaintiff’s explanations inadequate to justify a decision in his favor. The court also pointed out that the arrangement into which the parties entered meant that the plaintiff was coming into court with “unclean hands.” The court also noted that the plaintiff waited three years to bring the lawsuit against the defendant. During the deliberations, the judges observed that the plaintiff could have turned to the IRS and Franchise Tax Board to explain that those agencies had made an error and that he did not have an employee with the name on the W-9 form, and that he had not done so.

For these reasons, the court dismissed the plaintiff’s complaint. That conclusion was not a surprise. As I watched the episode, very early on I knew what the outcome would be, because the unclean hands doctrine was so readily apparent. The defendant could not have been more obvious in declaring a refusal to fill out a required tax form because of a desire to hide wages from the IRS. The plaintiff knew what was being planned and went along with the scheme. Unfortunately, the contractor was not in court and could not be questioned, especially the question asked by one of the judges during deliberations, which was why not simply fire an employee who refused to fill out and submit to the employer a required W-9 form.