An Alternative to Increasing the Gas Tax
Posted by Tom on June 5th, 2007A handful of discussions have popped up recently in response to the Utah Taxpayers Association’s suggestion that the gas tax be raised significantly. It seems to me UTA and those responding to their proposal are coming from different premises, and thus arriving at different conclusions.
One of UTA’s reasons for supporting a significant gas tax increase (offset by a sales tax cut) is to implement a form of congestion pricing. As a consumer, I choose not to travel during rush hour (as best I can), not because I think to myself, “Hey, I spend more on gas when I’m stopped on the freeway!” but because my time is important to me. My fossil fuel use is similar whether I drive during rush hour or on an empty road. (In part because my gauge’s “significance” is defined by the 1/4 of a tank. [1]) Since I don’t log miles/traveled and manually calculate mpg, it’s all the same to me. Time in traffic is the ultimate congestion pricing. [2]
UTA recognizes it’s regressive, and suggests a refundable income tax credit. It’s probably even more regressive than they realize, because the gas tax will also be passed on to consumers when they buy shop for necessities. Ugh. I thought the whole flat-tax movement was an attempt to make taxes easier, not harder. (I’m noticed their implicit acknowledgment of the “ed funding shell game” [3] in moving general fund money in and out of the education fund.)
UTA skips over the “inconvenient truth” <ahem> of local air quality, energy conservation, foreign oil dependence, conservation, or whatever other moniker you want to attach to the discussion. Those are good reasons for a gas tax too…
What conservationists miss is that gasoline consumption is fairly price-inelastic over the short term, and rising gas prices haven’t put a crimp in sales of gas-guzzling vehicles. [4] Gasoline is a dependent variable. It correlates to the type of car we drive, and how far from work we live, and a handful of other things. It’s largely inelastic because we see it as a “necessity.”
If conservation (rather than congestion pricing) were our goal, we might consider a different solution: address the cause, not the dependency, by assessing a percentage surcharge on combustion engine vehicles. Increase the charge for less efficient vehicles. Require the cost of the surcharge to be displayed next to the EPA estimates for every car sold. Inform the consumer, and make it immediately relevant in the purchase decision. (It would be less effective to disclose the charge along with sales tax and dealer fees when the purchase is nearly complete.)
For example (and these are just examples–I’ll leave the actual number crunching to someone else), we might set a charge of 1% for vehicles rated at less than 30 mpg (city), an additional 1% for vehicles rated below 20 mpg, and another 1% for vehicles below 15 mpg. The suburban at 12 mpg would have a total 3% charge. The efficient Honda Civic might have none.
The legislature can still do an income or sales tax offset, if they like.
It might not affect congestion and driving behavior, but it would address gasoline consumption, and could leave us with cleaner air.
- 2003 Ford Focus. And our three kids fit comfortable in the back seat. [^]
- Thus, I conclude a gas tax would have a minimal effect on congestion. Yes, I realize I’m arguing from a single data point, and succumbing to the false consensus effect. (I’m reasonable, others are reasonable, ergo others think as I do.) [^]
- This could probably be a post of its own. While it’s technically correct to say every income tax dollar goes to education, the reality is that the legislature can move money wherever they need by providing more or less of a subsidy to higher ed from the general fund, and shifting the difference between public and higher ed. It’s sometimes a point of contention between public and higher ed. There are those in education circles who insist all income tax dollars are theirs by right, but the legislature does have a responsibility to other programs too. You just won’t be able to get any of ‘em to admit they shifted around education dollars to do it. [^]
- See also the San Francisco Chronicle article. I’m sensationalizing a little bit here. The long-term sales trend is down, but there was a significant up spike in the first quarter. [^]
Your analysis of the Utah Taxpayers Association’s proposal needs a little tweaking.
1. Regarding the regressivity of gas taxes (direct and indirect), you should compare this to the regressivity of the transportation lobby’s current proposal which is to raise sales taxes by 0.25 percentage points every five to ten years. Clearly, this is the most regressive proposal of all (and does not include a refundable income tax credit).
Furthermore, the association continues to successfully advocate for eliminating sales taxes on business inputs, which addresses the issue of indirect regressivity.
2. The association does not consider a gas tax increase to be a form of congestion pricing as you suggest. Increased gas taxes do provide an incentive for car pooling, telecommuting, and living closer to work (all of which slows the growth in VMT which slows the growth in state/local transportation expenditures), but it does not provide much incentive to leave earlier or later for work. The association has never claimed otherwise.
Left by Mike on June 5th, 2007