Saturday, May 07, 2005

Auto Taxes

A recent Morning Edition segment on a budding alliance between auto makers and environmentalist reminded me of an idea I had for promoting fuel conservation: shift the cost of owning/operating a vehicle away from owning and toward operating. Eliminate ad-valorem taxes, sales taxes and title fees on vehicles and replace them with higher gas taxes; and require insurers and auto-leasing companies to bill more on a per-mile basis. These simple changes will reduce pollution, congestion, oil consumption, accidents and the problem of uninsured vehicles. Designed to be revenue neutral, these changes will neither raise nor lower the overall cost of driving but will raise the savings from not driving and from driving more efficient cars.
Today, much of the cost of driving is fixed. You get no break on your insurance or tag fees if you occasionally car pool or ride the bus, or if you make fewer trips to the grocery store. Yes, you will save on purchase costs and sales taxes by putting fewer miles on a vehicle, but those costs are so distant that few people weigh them into the cost of making a short trip. Also the fixed costs can overwhelm any benefit of buying a second car or motorcycle to save gas. I, for one, would consider getting a motorcycle or a very small car to commute to work and driving my sedan only when I need to take the kids somewhere. But my taxes and insurance would go up, not down, under the present system. Switching to a pure gas tax and per-mile insurance system would give incentives where today we have dis incentives.
That's where the auto makers come in. This plan would lower the cost of buying and owning multiple vehicles and actually provide an incentive to do so. That would be a bonanza for auto makers. Ford and GM executives should salivate when they read this. Auto makers have huge lobbying resources; they could even offer to build or expand a plant in a state that agrees to adopt this plan. And any state that did would be at an advantage over its neighbors; more of its taxes would be paid by motorists passing through and less by residents and businesses in the state. A state like Virginia or Georgia adopting this could result in a domino effect where all its neighbors follow suit.
This should also encourage more use of public transportation, car-share systems, and car ownership for the poor. High insurance and title fees often prevent the poor from owning even a cheap used car. True, higher fuel taxes will still keep them from driving very much; but having a car for emergencies, work and job interviews can be vital.
If insurance is billed on a per-mile basis, then no one can say, "I'm dropping insurance on this car because I'm not driving it." The state could reasonably require that all vehicles be always insured. Essentially, an insurance company could never drop coverage unless the car is demolished or some other company assumes coverage.


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