Coase Colored Glasses

Saturday, February 05, 2005

Oregon: Miles tax to replace gas tax?

I just finished reading an article that states that Oregon is developing a trial system to tax on milage traveled instead of gas taxes. The article is titled, "Driving While Intaxicated". The focus of the new program is to increase revenues from taxes to fund state roads. Currently, with the increase of fuel efficient cars Oregon is not bringing in as much in gas taxes as needed. I thought that a similar program could be used to help internalize the externalities caused by pollution.
The design is to tax vehicles based on the number of miles that they travel within state borders. This would be monitored by a GPS system that records those miles. Each time that a person goes to pay for their gas a computer chip located near the gas tank would let the pump know how many miles you traveled and charge you the applicable tax. A major advantage, in my opinion, to taxing in this manner is that the tax can be flexible. For example, on days with an inversion the tax could be double or tripled. Certain times of the day could have a higher tax attached.

3 Comments:

At 11:59 AM, Blogger Nicole and Andy said...

One of the big problems I see with the mile tax is that it does nothing to help us burn fuel more efficiently. Like any tax method, it is hard to judge how much the tax should be. If there is a complaint about raising gas taxes imagine a raise on a "mile" tax. It would be better in my mind to have a tax or restriction so that cars will be cleaner rather than just having us all drive less. In my mind I see it as much more effective.

 
At 10:41 AM, Anonymous Anonymous said...

An additional flaw to this idea eveyone seems to be neglecting is the cost of providing the GPS chips in the first place. who is to gaurantee that cars are equipped with the said chips. Are we to expect the consumers to pay for them, if so then with this policy we can expect fewer new cars to be purchased. (this is the economic principle that as the cost of all related goods go up the purchasing of luxury or high class goods such as new cars goes down, while the sale of inferior goods remains the same or increases.) Accordingly we see that new cars are more efficient than older cars (as a general rule) and so emissions would not markedly improve. If the policy is paid for through regular taxes, than overall taxes will rise diminishing a family's disposable income.

In addition to this I disagree with Jared that the man will quit his job because of the added burden, but claim that he will stop spending money on other "leisure goods" that are used as fuel for the economy.

Another problem with this is the inability to regulate out of state traffic (assuming this law is limited to single or specific states). There is no legal way to guarantee that all vehicles used in the state will be purchased within the state, nor can policies enacted in one state have influence over sales and production of cars in another state. What would fill up stations be required to do in this case? How many miles would you assume a tourist would have travelled within your state, and not in another?

With the tax people who work close to the border of the State will be more likey to live in the neighboring States to avoid both the tax responisibility and the associated GPS chip in their gas tank. This policy has the potential to both hurt the economics of the state while doing nothing to reduce emmissions.

 
At 9:59 AM, Anonymous Anonymous said...

In response to the idea that any economic gain would occur by the government getting an increase in revenue is flawed both historically and theoretically. The legislature (whether state or national) is elected by citizens who expect actions to be taken to benefit themselves, which includes monetary grants. Government acts, however to provide specific programs to specific groups or individuals to cater votes. All the legislature needs is a majority to get back into office, and so they will act in such a way as to be re-elected, which has nothing to do with being economically efficient.

This originally appears to have no negative impact on the economy, just an unfair redistribution by the government, but its a little more complicated than that. As the government gets more money, they don't use it to pay for the programs they already have, they use it to fund more programs, often using funds to spend more than they are taking in.

I know many people don't see the problem with this but it all comes back to the theory of economic income or national GDP which is shown as:

Y = C + I + G + NX (GDP = Consumer spending + Investments + Government Spending + Net Exports)

Idealistically if the Government just allowed the revenue to come in and not add to its spending, we would see C diminish (the influence of the tax on consumer behavior) and NX would increase to assist with the current negative net exports we are experiencing.

But (more likely) if government only spent its tax burden, under this type of tax, Y would remain constant, C would decrease (the influence of the tax on consumer behavior), G would increase (using the tax money). This would decrease household utility (happiness) levels according to Utility maximization.

However if the Government spent more than the revenue it generated on the tax (which is unfortunately the most likely) we find a greater problem. The national deficit rises which has to be covered by either private domestic investment or by running a trade deficit and encouraging foreign investment in U.S. securities. As this rate rises, so does the instability of interest rates, unemployment, and the stability of the dollar. many economists currently fear an attack of serious inflation because of the current deficit and historically, because people are "rationally ignorant" about what government does, and even more so about the governmental policies effect on the economy, we continue to feed them more money thinking they will someday "get a clue." It hasn't happened yet, nor do I expect it to happen soon.

The history of other nations (like Brazil, Mexico, and Holland) show us that as a nation runs a negative net exports for too long, (which is always associated with an internal budget deficit) you get rampant stagflation, to use Reagan's term. In other words, foreign investors begin to see the risk associated with investing in U.S. securities, and so demands a higher return for them, and the dollar is able to purchase less, and we find ourselves paying more for imports. This will affect us less than other nations in the past because only about 10% of our GDP comes from imports and exports, but we will still feel the pain.

This shows us that only if the government provides no new programs with its new found revenue does it help the economy, otherwise, sorry to say it will hurt the economy while providing no real improvement to the enviroment.

 

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