Gas-Guzzler Tax: Just Turn it On

January 25th, 2008

Some years ago, in one of the few instances where the NYT actually published one of my letters, I ranted about how we should institute a heavy tax on low-efficiency vehicles.

To the Editor:

Gregg Easterbrook’s proposal for a 50-cent-a-gallon increase in the federal gasoline tax (”The 50-Cent-a-Gallon Solution,” Op-Ed, May 25) is absolutely on the mark. Except that it ignores reality.

No politician would dare to propose it, and the American people wouldn’t swallow it. And despite all its benefits, there is good reason for even liberals to oppose it — as Mr. Easterbrook acknowledges, it’s nonprogressive.

Unlike income taxes (which Mr. Easterbrook proposes reducing to offset the gas tax), a gas tax would shift the tax burden to lower-income taxpayers who can ill afford it.

A better alternative: impose large taxes on the sale of low-efficiency vehicles.

Americans with excess piles of cash would be free to buy Humvees and Cadillac Escalades, but they’d have to pitch in, say, $5,000 to offset the costs of their selfishness, including pollution-related illnesses, global warming and, perhaps the most expensive of all, threats to our national security from energy dependence.

We could call it the National Security Tax.

What I didn’t realize at the time, and only discovered the other day in my web travels, is that we already have a gas-guzzler tax. Have since 1978. A hefty one. Here it is:

GAS
GUZZLER TAX
Unadjusted
MPG (combined)*
Tax
at least 22.5
No tax
at least 21.5, but less than 22.5
$1000
at least 20.5, but less than 21.5
$1300
at least 19.5, but less than 20.5
$1700
at least 18.5, but less than 19.5
$2100
at least 17.5, but less than 18.5
$2600
at least 16.5, but less than 17.5
$3000
at least 15.5, but less than 16.5
$3700
at least 14.5, but less than 15.5
$4500
at least 13.5, but less than 14.5
$5400
at least 12.5, but less than 13.5
$6400
less than 12.5
$7700

The problem is—this just sounded too good to be true, right?—the Gas-Guzzler Tax doesn’t tax gas-guzzlers—trucks, vans, and SUVs. And it explicitly excludes cars over 6,000 pounds. (Is it just a coincidence that the BMW Z5’s “curb weight,” according to the company, is 6,008 pounds?) And the top limit—22.5 miles per gallon, is ridiculously low.

A list of those few 2008 vehicles subject to the tax is here (PDF). About two hundred models, total. They’re all high-performance cars. I count ten American cars (five Chryslers, five GMs), and one (one!) Japanese car (Nissan’s M45X). The rest are exotic and semi-exotic European imports. Meaning that pretty much all the cars that Americans actually buy are excluded.

So while  our representatives have been muddling around with an unwieldy, anemic, and contortionally market-distorting set of CAFE standards, the perfect market-based tool for reducing oil dependency is one tweak away from being actually useful.

Just change the rules so the Gas Guzzler Tax applies to all (non-commercial?) vehicles, and call it good. For good measure, raise the top MPG limit.

Did our representatives even consider this? I can’t find any press reports suggesting they did.

Now I feel like I hardly need to detail the long list of positives associated with such a tax. (Those who oppose taxes on principle, save your stamp; I’ve heard it. We need to tax something to finance the government.)

  • It causes vehicles to be priced more accurately, by putting a price tag on the many very real “externalities” that all Americans pay for, but that aren’t included in a vehicle’s cost of goods. (Things like B1 bombers, Homeland Security Departments, lung-related deaths, corn subsidies, possible global environmental pandemonium, such like that.)
  • It’s much more progressive than a gas tax, because people who can afford it will be the ones who pay it.
  • It harnesses the power of the market to promote many valuable economic and social goals. (National security, reduced pollution and greenhouse gases, better public health, reducing oil dependence and the resulting need for unsavory alliances, etc.)
  • It leaves people the freedom to choose low-efficiency vehicles. They just have to pay the full cost.
  • It’s easy to administer, because it’s paid by the manufacturer. (Who passes it on as part of the sales price.)
  • Since the consumer ultimately pays it—and makes the decision whether the more-accurately-priced car is worth the money—it has all the advantages that consumption-taxers will be delighted to detail for you.
  • It uses the market to send the message to automakers—make fuel-efficient cars available—that they’ll actually listen to.
  • It provides revenues for the government. (I know, some wackos think that’s always a bad thing. I hope they enjoy their cave dwellings.)

Update, 2-18-08: Several people on other sites have pointed out something I only included in a tiny parenthetical: people who need low-efficiency vehicles for their work. They shouldn’t be penalized, it’s argued. I agree–as long as they truly do need it–for reasons of both fairness (they’re not just leeching off the public subsidation of negative externalities) and economics (big taxes on small business probably hurt everyone more than other taxes).

But consider: small-business owners get to write off vehicle purchases. The numbers for a purely fictional but probably representative situation:

Car cost: $30K
Tax: $5K
Tax bracket: 20%

They get to write off the whole truck, including the tax, so they save $7K. Their gas-guzzler tax is cut by $1,000—20%.

It’s not a huge difference, but it does ameliorate the impact on these folks some. And it does maintain the incentive to go with smaller, more efficient vehicle. (Which incentive is needed by tradespeople as much as by others…) I’ve tried to think of another method that doesn’t require yet more paperwork, haven’t thought of one.

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