StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Why Raise the Cigarette Tax When You Can Just Tax Breathing?

08 Feb 2010
Posted by Andrew Samwick

So goes the logic (with only mild exaggeration) of one of the most ridiculous policy proposals I've read in a while -- to make up for falling gas tax revenues with a new tax on miles driven.  Ashley Halsey III is on the case in The Washington Post yesterday. 

The appropriate tax instrument to make up for declining or inadequate gas tax revenues is ... a higher gas tax rate.  Compared to a higher gas tax rate, a tax on miles driven ignores the amount of fuel used to drive those miles.  Highway travel is taxed the same as city travel.  Gas guzzlers are taxed the same as hybrids. Neither change makes any sense from an environmental perspective.  Nor is it necessary to raise issues of privacy involved in collecting a tax on miles driven in the ways suggested in the article by monitoring the history of the locations of the car (as opposed to an annual fee based on an odometer reading collected at a state inspection).

Many cities are experimenting with congestion taxes, which are based on miles driven at particular times in particular locations.  Those are worthwhile policy measures to relieve congestion and are different from a uniform tax on miles driven. 

For some reason that

For some reason that brilliant idea reminded me of something Michael Keaton's character said in Night Shift. Fancying himself an "idea man", he always keeps a tape recorder with him to record his amazing inspirations. On one occasion he records his initial idea of mixing mayonnaise in the can with tuna fish, but then gets an even more amazing idea: "Feed mayonnaise to tuna fish".


Yeah but

You're not really giving the whole picture here, are you? Most of the ideas for a mileage tax would take advantage of the flexibility of this sort of system -- vehicles could pay different rates depending on their weight, for instance, or you could pay different amounts for when and where you drive. The technology is pretty much all there, and could be up and running nationally in 10-15 years.

The purpose of the gas tax is not to cut down on gasoline consumption, it is to fund our surface transportation network. But the trend lines are diverging, and gas use is rising much more slowly than road use. If we can key revenue sources directly to road usage, that would give a much steadier income stream to pay for repairs etc. What's wrong with that?


What is the *purpose* of the tax?

You seem to be assuming that the purpose of the gas tax is to have environmental effects (conceivable if it hadn't been around longer than we've cared about that) or to reduce congestion (wait, what?), and then bashing the idea of an odometer tax based on this assumption.

But of course that's a rather bogus assumption, even the linked article explains that the purpose is actually (meant to be) to pay for road maintentance, so "fuel used" is taxed based on it being a proxy for "damage done to roads" (and for exmaple farmers can get untaxed fuel to use in farm equipment off of the roads). With new vehicles like plug-in hybrids and even a few full-electric vehicles completely destroying the relationship that the gas tax is based on, it makes perfect sense to replace it with an odometer/tonnage tax that much more directly taxes the thing meant to be taxed (damage to roadways).


Because

Gas taxes are not used to save the environment, they are used to pay for roads. Someone driving in a city (and getting fewer MPG) is subsidizing the person who is driving on the highway (and optimizing MPG). Therefore, changing the basis for the tax makes sense.

If the point was simply to raise revenue and not apportion costs, I think your point is well-taken.


The gas tax does reduce

The gas tax does reduce fossil fuel consumption - and that is a feature, not a bug. I could care less if that wasn't the original intent of those who created the gas tax. I'm all for paying for roads, and we have a system already in place to do so. If it's not providing enough revenue, then hike the tax.

Yes, electric cars will be coming online soon, cars which may end up paying zero in gas taxes. However, much of the energy which will charge electric cars will initially be from coal-fired power plants. Tax coal/fossil fuel-generated electricity too, and use some of the proceeds to build/maintain roads.

Call me about milage taxes when those sources of funding are approaching exhaustion.


Gasoling Tax AND Road user charges AND copnestion charges

Simple Tinburgen principle three objectives, three instruments. A gasoline tax (or better a carbon fuel tax) for the global warming objective,a miles driven (adjusted for vehicle size, weight, etc.) to finance roads, and a congestion charge (monitored with an implanted chip measuring proximity to other slow moving vehicles) to discourage congestion.


I thought the whole game of

I thought the whole game of government is to get a benefit while someone else picks up the costs. Surely the rich can just pay for all of the roads, schools, and everything else we need and want. Getting people to pay their own way would be "regressive".


Nearly all economists would disagree with you

Taxes on gasoline are good to reduce fossil fuel externalities, but taxes on miles traveled are better to reduce congestion and accident externalities, in addition to paying for the road use itself. You need both.


Fortunately, the gas tax

Fortunately, the gas tax addresses both kinds of externalities.


While I agree with you on the

While I agree with you on the policy, I think it's important to remember that driving produces rather serious externalities apart from GHG emissions. Most notably, tens of thousands of deaths.

Insurance works with those, though, so I'd much rather keep the tax carbon-focused.

And let's leave aside questions of the tax's original purpose. This is not Constitutional interpretation.


Highway Trust Fund

Eric,

So in examining how to solve the problem of the gas tax failing to serve its original purpose, we should leave aside questions of the tax's original purpose? Uh... what?

As most of the posters have said, the problem with declining gas tax revenues is that the gas tax is the primary source of funding for the Highway Trust Fund. Because of a decline in such revenues, the federal government now engages in annual bailouts of the HTF -- mostly by borrowing from China. This is unsustainable in the long run.

An important principle of the HTF is that it is supposed to be funded by USERS -- i.e., benefits-based taxation. If a Prius weighs as much as a gas-guzzling sports car, then it will cause just as much wear and tear on the roads, and therefore should have just as much liability for repair and expansion per mile driven.


Madness

This is the first time I am hearing about this one. I wonder when the taxing madness will stop. How on earth would they even be able to make the determination of how many miles were driven? ONLINE CASINO


Grist for the Mill

Relevant paper: http://www.rff.org/News/Press_Releases/Pages/SocialCost_Driving.aspx

Finds VMT tax to be preferred instrument for 'full social cost pricing.'




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