A friend looked at my posting about the proposed sales tax on airplanes in Massachusetts, likely to send airplanes and associated jobs across the border into tax-free New Hampshire, and asked “Why should there be a sales tax on cars and not on airplanes?” My first answer was “Because it is a lot quicker to fly a $50 million Gulfstream over the border than drive a $20,000 Toyota” (though perhaps this is wrong given recent reports of sprightly performance, albeit unintended, in Toyotas). But the deeper answer was “There shouldn’t be a sales tax on cars. It doesn’t make sense to discourage people from buying new fuel-efficient low-emissions cars. If the government wants to collect money from drivers it should do it by taxing gasoline, thus discouraging people from driving inefficient and high pollution cars.”
It seemed an obvious idea, but as far as I know there aren’t any states that have dropped a car sales tax and substituted a higher gas tax. How come?
Take a look at this:
http://en.wikipedia.org/wiki/Pigou_Club
The economists seem to have thought about this issue.
I would think part of the problem is that car buyers aren’t very rational in that they get the largest car they can afford right now, instead of worrying about total cost of ownership. So they get a gas guzzler. Of course, politicians aren’t very rational either…
Presumably because gas taxes are politically unpopular. Normal people don’t know what politicians do with their time, but they do know when they keep “paying more at the pump.”
It’s also easy for Exxon lobbyists – “you’re taxing the weakest segment of the population who can’t afford new vehicles.”
And of course, in theory, there are all these bills to eliminate taxes specifically on fuel-efficient low-emissions cars. I don’t know if any have passed.
The government shouldn’t try to make people do things or not do other things.
The prices, left to themselves, will follow the (energetical) cost of extraction of the energy, and people will naturally choose the cheapest one.
Indeed, the consequences of taxing anything, is that the government has a motive to promote that thing. If all (or only a part of) the money spent on wars to keep the oil tax money coming in had been spent on other energy sources research, we would already have switched to other energy sources.
How come? Ask the GEORGES !
It is very common in Europe to do what you intend. But if only usage was taxed people would develop a more frugal behaviour and different mindset. Somehow this is not wanted? In Germany there is only a somwhat low fee for owning a car that is collected yearly. The green party always wanted to shift that on the gas price completely. (They hiked the gas price already with an “eco-tax” that was introduced additionally in 1999.)
For one, raising the gas tax hits everyone now. I.e., it impacts those who have already bought a car and have no desire or ability to buy a different one any time soon. This provides a certain level of stickiness towards the status quo. It’s also somewhat more regressive than the sales tax. The poor will be more likely to own an older, less efficient car, and they’re also less likely to be able to upgrade, so they’re disproportionately impacted by the gas tax.
Every driver pays the gas tax; few pay the new car tax in any given year.
Folks worried about the regressive nature of a gas tax: I don’t think that this explains the situation adequately because politicians have imposed a lot of other regressive taxes, e.g., California has 10% sales tax now in many areas.
Informatimasgo: Why should the government discourage pollution with taxes? Because it is an http://en.wikipedia.org/wiki/Externality and therefore cannot be priced properly by a standard market.
Folks worried about the impact on the poor: As the U.S. trends towards a population of 1 billion in 2100, it won’t be a very pleasant place to live if poor people are encouraged to pollute the environment. See present day China for an example.
I question whether buying a new, fuel efficient car actually reduces inefficiency or pollution if you factor in the production of the vehicle (though it would move the pollution out of MA).
Because “obvious idea” and “states” (governments) rarely go together? (Ok, I’m being snarky, sorry). But hey, if you ask me, I think governments should eliminate income tax and substitute sales tax, because sales tax discourages consumption while income tax discourages innovation and entrepreneurship. Of course if you did this you would additionally need ways of compensating for the regressive nature of the sales tax.
This obvious idea is implemented over here. In the Netherlands 61,57% of the price goes to government (VAT and excise tax combined). So we pay 1,50 Euro a liter.
That’s the reason we drive fuel-efficient cars (2 Priusses in my case, free from ownership tax) and owning more than 2 a family is rare (we also have hardly any space to park these things in our small country).
We do have the biggest number of bicycle per person in the world! Keeps the country clean and the body slim.
We should be taxing sales of all new (i.e., not previously owned by a consumer) tangible goods because creation of new tangible goods leads to environmental pollution (which, as Phil notes, is an externality). Even if a consumer wants to switch to a more environmentally friendly vehicle, the environmental cost of raw materials and manufacture of this vehicle is still very high. The right answer is to discourage production of tangible goods and also to discourage driving.
I’m wary or the word “polution”. This is a loaded word. The by products of one chemical reaction are the reactants of another.
The governments have better ways to prevent bad “externalities”, namely by regulations. If it is bad to difuse lead in the atmosphere (lead is not bad, it has a lot of good uses, so it is better to keep control of it), then it’s not by taxing the buyer, but just forbiding the producers to produce leaded oil.
If there’s a tax, it’s only because they want the money, and they want to fill our minds with useless things instead of leaving it free to think how evil they are.
The same with all this “ecologist” brain washing. What can I do about heavy metals in products, as a customer? I don’t care what elements are used in the products I buy. It’s the job of the engineers producing them to ensure they’re safe, and a “sane” government would just edict a rule (as they did in Europe) the use of some heavy metals in some products, for the engineers to apply. There’s no point in taxing the customers or in filling their minds with that. Do I, as a software engineer, bother the customers about the programming language I use, and should a government tax software written in C or perl more than thos written in Lisp???
Finally, about externalities, you have to be careful. We’ve reduced the emission of CO2 (which by the way is a perfectly innocous gas, biologically (as long as it is not a majority of the atmosphere)). Now the “externality” is that the climate is colder, and more people die of cold or influenza, and more work days are lost in the winter because of the snow, and so on. What an “externality”! Who will pay for that?
Clearly, politicians are the less able to think about complex systems, and they shouldn’t be allowed to intervene in any.
Seems to me the obvious way to avoid the problem of a higher gas tax being an undue burden on the poor is to raise the gas tax even higher. But rebate the tax annually through the state income tax on the first ~15 gallons/month (or whatever the number we pick might be). This way the frugal poor who can keep their fuel usage to less than 15 gallons/month effectively pay a negative tax and the gas guzzling rich folks who drive all over the place are financially discouraged from doing so, but can if their willing to pony up.
And people who pay income taxes but don’t own cars get rewarded for living car-free and keeping their burden on the environment down. Win, win, win, no?
How come? Not because of any flaw in the idea. It seems current politics preclude us from pursuing certain obvious solutions.
I do think it is hard (and maybe dangerous) to try and achieve two different policy goals (i.e. raising funds for government operations and addressing economic externalities) with one tax. Taxes intended to raise funds for government operations (a) should be levied at a rate such that the revenue raised matches government spending. Taxes intended to address an externality (b) should match those costs that are not captured by the existing market price. Doing (a) or (b) alone is difficult enough; trying to do both simultaneously seems like a recipe for error with consequent economic distortion.
informatimasgo: The specific attributes of the “lead in gasoline externality” made it amenable to a regulatory solution. Not so for the externality Philip is discussing here.
I stood for Congress in MN as a “liberal Republican” (I’m one of about five in the country) in 2004 &, of course, was trounced in the primary. One of the position papers I wrote and posted on my campaign website/blog called for auto insurance reform in the form of national pay-at-the-pump auto insurance. If anyone is interested in learning how it would save fuel, would encourage buying fuel-efficient cars, and would cut insurance rates (because we who are insured in effect are paying for the estimated 25% who drive without insurance), here’s a link. http://www.burtonhanson.com/id55.htm
“Why should there be a sales tax on cars and not on airplanes?”
Aircraft are federally registered cars are state registered. Dodging state collections on aircraft isn’t that hard but will move stuff away from the taxing state. Granted some states have aircraft registration but I’m not sure how robust enforcement is. Buy a car in NH and they will get you when you register it, to discourage driving a car registered out of state doing so with a car registered in your name is a $500 fine in MA.
It’s easier to tax some transaction that is already expensive and happens rarely. Gas tax would be unpopular. A rare politician that had balls and could make decisions would definitely tax gas, in order to reduce fuel consumption, lessen pollution and cut unnecessary driving.
It’s irritating for a reason to watch the high numbers at the pump because that’s the whole point of taxing gas! Consuming lots of gas = not good, needs a reminder!The citizens’ decisions regarding car usage and amount of driving are repeatedly influenced by stopping the at the gas station at regular intervals.
In Nebraska, when gas was around $4.00/g we Nebraskans did the sensible thing and drove less. Less demand for gas meant less tax revenues for highway maintenance, etc, so the Nebraska Unicam allowed an increase to the present .273/g Source. Rather than decrease taxes and encourage more and potentially unnecessary driving to raise revenues during a time when the commodity price was high, we took the other road so to speak.
Well we in Germany have rally high gas taxes. They make up more than 75% of the price. But well they are not used to build and repair streets but to fill the gapping financial holes. I can not see the advantage….
Do over. I do not concede your underlying assumption that a sales tax is intended to moderate consumption. Sales tax is assessed at such a rate as it simply captures a percentage of the value of commerce in general. The discussions that surround sales tax holiday proposals about their efficacy in generating genuinely new sales versus pacing preplanned purchases are epic. I believe the converse – that the number of sales that are irrevocably lost to the hurdle of sales tax – is open to debate as well. Excise taxes may more subtly influence a purchase decision, but not on any grounds related to fuel economy or product particulars. A targeted and significant consumption tax, or congestion tax, or carbon pricing, if such taxes were levied, would be relevant.
What it boils down to: try to get elected with a platform that includes higher gas taxes. Even worse: try to get reelected after passing higher gas taxes.
For a higher gas tax to occur, a significant chunk of real, actual voters would need to agree to vote for some guy who wants to make GAS more expensive. Expensive gas is okay in most of Western Europe – there’s a combination of trams, taxis, buses, subways and trains to take you anywhere (and pretty cheaply). So if you can’t drive 2000 miles per month because gas is 7 euros/liter or whatever, it’s no big deal.
Public transport in most places in the U.S. is a joke, so if gas prices go up you’re squeezing voters who have no alternative. Therefore, it is impossible.