Replacing the Gas Tax
Brian Gongol

Road Funding Depends Heavily Upon A Declining Base of Fuel Taxes
At present, most highway funding in Iowa comes from fuel taxes and vehicle registration fees. The same is true for most other states. This condition will inevitably have to change, for a number of reasons: Per-Mile Taxes Are Being Considered As An Alternative
Oregon is initiating an approach to the next generation of taxation by planning a 2005 program to install transponders in private vehicles in order to charge them a per-mile tax rather than charging them at the pump. Governor Arnold Schwarzenegger has nominated a new California DMV head who has backed a similar proposal.

The Methods Proposed for Collecting Per-Use Taxes in Some States Are Obtrusive and Create a Privacy Concern
The problem with both the Oregon plan (which uses GPS tracking to report the vehicle's mileage back to the state) and other proposals (like one that would use a transmitter to report odometer readings at the pump) is that they open the door to extremely serious privacy issues. It doesn't take a vast amount of paranoia for one to be concerned about the government owning a database of every vehicle's location and travel habits, or worse, to have real-time tracking of every vehicle on the road.

However, Per-Mile Taxes Are Still Probably Best
But a per-mile tax obeys one very reasonable principle of taxation: That taxes should be collected closest to where they are spent. Significant hikes in vehicle registration fees would disproportionately punish drivers who don't drive very much, as well as causing big market distortions as they already do in Europe. High vehicle registration fees would tend to be highly regressive, since the poor pay the same per-vehicle fee as the wealthy.

How to Collect a Per-Mile Tax Without the Privacy Hassle
How, then, could a per-mile tax be assessed efficiently without raising serious privacy concerns? Perhaps the easiest method would require a once-a-year visit to the state Department of Transportation for a simple odometer reading. Each vehicle would then be taxed based on the number of miles driven, times a factor that would assess the wear and environmental damage caused by that vehicle. Heavy trucks, for instance, would pay a factor higher than lightweight hybrid passenger cars.

How to Make It Fair to Each State
But what of the fact that many miles may be driven outside of a vehicle's home state? Simply this: Each state would collect the tax according to a uniform formula above. Then the Federal government would be charged with redistributing the tax dollars according to another simple formula: The square root of the state's population times its total number of federally-funded road miles.

Nebraska 2,978 Federal road miles 1,739,291 people
New Jersey 2,073 Federal road miles 8,638,396 people
Why that formula? Because a purely population-based formula would do serious harm to a state like Nebraska, which has vastly more road miles but far fewer people than New Jersey. But a pure road-miles formula would disproportionately punish a state like New Jersey, even though more passenger-miles are probably put on Interstate 95 between New York City and Philadelphia than on Interstate 80 between Grand Island, Nebraska, and Lincoln. Why the square root of those two factors? Because using the geometric mean is the smart way to average several factors that are multiplied by one another.

The Formulas
Tax per vehicle = (Miles driven * Vehicle damage factor)

Total taxes collected per state = (all registered vehicles) (Miles driven * Vehicle damage factor)

Taxes to be distributed per state =
(taxes nationwide) *   Square root (Population * Total Federal road miles)

all states Square root (Population * Total Federal road miles)
It's a Far Better Plan than the Alternatives
Simple. Reasonably fair. Efficient. Unobtrusive. And the only Federal role is to count the money taken in and send it right back to the states. Can anyone offer an alternative that doesn't smack of neo-Ludditism that makes more sense? Certainly, methods for collection might have to be flexible to allow vehicle users to spread their payments out over the course of a year, but mechanisms like that already exist (think mortgage escrow plans that collect for property taxes by a little each month). And nothing about it prohibits individual states from enacting other methods of collecting taxes to pay for non-Federal roads. In fact, the same model could be simultaneously applied on the state and local level in order to deliver a simple, comprehensive funding mechanism.