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This page contains a single entry from the blog posted on June 23, 2008 1:26 PM. The previous post in this blog was The ultimate in sustainability. The next post in this blog is The City of Portland loves me!. Many more can be found on the main index page or by looking through the archives.

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Monday, June 23, 2008

They're experts about pain

The IRS has raised its estimate of the cost of driving -- a nearly 16 percent increase over just the last six months. It's going to be 58.5 cents a mile, effective on July 1 -- up from 50.5 cents on January 1.

Comments (12)

Jack,
Is that the new allowable reimbursement rate?

It is "the optional standard mileage rate... for computing the deductible costs of operating an automobile for business... purposes and for determining the reimbursed amount of these expenses that is deemed substantiated."

Perhaps I should look into the delivery business again. $.585/mile isn't too shabby in my little Civic now that it's been paid off...

I recently took trips to Salem and Eugene on business, with reimbursement, and even at 50.5 cents, it amounted to a noticeable chunk of change.

Maybe all those bike/trimet geeks are on to something...

It seems to me that the IRS is raising this rate all the time. The last time I used it, it was at 26 cents per mile. It might make sense for me to pick up some deliveries rather than pay to have them delivered.

The rate is increased at least once a year -- twice a year if costs rise sharply. But it hasn't been 26 cents in many years.

Jack: The IRS has raised its estimate of the cost of driving -- a nearly 16 percent increase over just the last six months. It's going to be 58.5 cents a mile, effective on July 1 -- up from 50.5 cents on January 1
JK: This is actually the AAA estimate which is based on the driving habits of the average AAA member.

The most striking difference is that they base it on an average car age of 2 ½ years, while the average American’s car is 9 years old. This greatly inflates the cost per mile due to the depreciation component of cost. Additional costs due to the newer car include higher insurance, sales tax, registration fees. (this is national data, not Oregon.)

As background, the cost of driving is roughly divided into two pieces: The fixed costs that you pay wether or not you drive and the variable costs that vary with the amount of driving.

Fixed costs include: insurance costs, license, registration, taxes, Depreciation, Finance Costs and average about $0.37 per mile for the AAA average and $0.17 per mile for the average American’s older car.

Variable costs include: Fuel costs, Maintenance, a comprehensive extended warranty, Sales tax, Tires Costs. I’ve laid all this out at:
PortlandFacts.com/Printables/AAA_Method.PDF
PortlandFacts.com/Transit/Cost-Cars-Transit(2005).htm

The amount you pay for gas is easy to calculate: Average car 23 MPG, at $5/gal:

$5.00 /gal divide by 23 miles/gal = $0.22 / mile (note the units work just like fractions)

Add another $0.06 per mile for maintenance and supplies, and you get a real cost of driving at about $0.28 per mile once you own the car.

It is interesting to compare this cost to the cost of Trimet:
That $0.28/mile is vehicle-mile, not people-mile (called passenger-mile) because the average car has 1.3 people in it locally. Applying this factor gives $0.22 per passenger mile variable cost for the average American.

Trimet shows a cost of $0.43 per passenger-mile for MAX (data from TriMet’s busmaxstat.pdf), about double that of driving. (Interestingly, the rail portion of the proposed Columbia Crossing comes in at over $4 per passenger-mile just for the fixed costs.)

How high would gas have to get to cost the same as MAX?
0.43 - 0.22 = 0.21 more per pasenger-mile, or about 0.27/vehicle-mile. At 23 MPG, this is another $6/gal, for a total of around $11/gal.

Of course at $11/gal most of us would get 50+ MPG hybrids, so the target is actually moving and well above $20/gal (50 x .27) If you count ownership costs, the MAX cost about triples, while the car cost goes up by about 50%, so gas would have to get above $100/gal to match the real cost of MAX.

PS: I expect some comments from the transit lobby, but please keep them to the facts and numbers, ad hominems only show that one has no valid argument.

Thanks
JK

Would a moped qualify?

How about pegging the optional transportation deduction to the use of a moped? If folks want luxury transport then that would certainly be their own personal choice, but not something that the general taxpayers need to supply a tax-based inducement.

How about a moped purchase program patterned after the HD TV Converter Box rebate program, resulting in an out of pocket cost of 500 bucks to get a $1,500 150cc or 250cc moped? (Perhaps as a substitute for the per-mile deduction, and the record keeping -- and verification -- headache it causes.) A car could qualify too, but would be limited to the amount made available for a moped; no more than $1,000 bucks.

The most striking difference is that they base it on an average car age of 2½ years, while the average American’s car is 9 years old. This greatly inflates the cost per mile due to the depreciation component of cost. Additional costs due to the newer car include higher insurance, sales tax, registration fees. (this is national data, not Oregon.)

If you take acquisition costs out of the equation and focus just on gas, the percentage increase in the last six months really moves up from that 16 percent.

It was 50.5 cents per mile beginning January 01, 2008. The feds raised it and lowered it a couple years ago. The IRS rate is the rate at which we reimburse our employees for business miles driven. You can't reimburse more than the IRS rate unless you consider the excess taxable income. Some employers reimburse less... it's at their discretion.

I was betting with some friends that the IRS would do a part year change (like they did in 2005).

I wonder how you'd calculate the IRS's theoretical car's miles per gallon.


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