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Eco conscious? There's a tax for that.
The State of Oregon is considering a tax on environmentally friendly vehicles that are, by nature, paying less gas tax. Sarah Butzen has a better idea.
Posted January 11, 2013
If economics has done nothing else for humanity (and I'm not saying it hasn't, I'm just saying if), it's performed the very great service of giving us names for all of the special ways in which we humans, every day, each in our own small way, do our part to make the world a little bit worse for everyone else in it.

Take the concept of externalities, which refers to any activity whose cost is borne partly or wholly by society at large rather than by the person doing it. I would argue that without this concept, we would understand pretty much nothing about driving. And driving, as an activity, probably contributes more externalities to the world than any other pursuit.

Think about it: there's the environmental damage from emissions, the wear and tear on roads, noise pollution, loss of quality of life in high-traffic areas, the stress caused by drivers who cut you off and by the effort of restraining yourself from flipping them the bird. All of these costs land upon society at large; for the most part, they aren't brought to bear upon the individuals who created them.

(It would be great if they could be; I'm imagining toll booths staffed by experts in automotive etiquette, who would stop you as you exited the freeway. "Good evening sir, our analysis shows that you contributed approximately four percent of the awfulness on the highway tonight, so that'll be $85.79 from you before you can go home." How would we assess people's behavior and the costs? Easy; I'd be personally in charge of it. Don't worry about it, here's a pizza. Isn't that a circus over there?)

Governments are constantly trying to correct externalities, levying taxes and fees in an effort to connect activities with their costs. They've been moderately successful, but it's hard to come up with a fair way to figure out who should pay what (no one seems to care for suggestions like mine above). It gets even harder when (1) there's more than one externality, or external cost, in play and (2) the tax that's levied doesn't directly correspond to the activity it's trying to pay for.

That's what's happening in Oregon right now, where a bill has been introduced to the state legislature proposing to tax the owners of fuel-efficient cars for the miles they drive. Yes, that sounds bizarre, but hang on. Oregon already collects a 30-cent-per-gallon tax on gasoline, which is used for road construction and maintenance. But revenues from that tax are projected to fall as more and more cars on the road are electrics or hybrids, and the state's transportation department as a whole is looking at a $10 billion shortfall.

See what they did there? Oregon - quite reasonably - used a gas tax to correct the externality of wear and tear on roads. But now that some cars are becoming increasingly fuel-efficient, they can drive the same number of miles but use less gas. Turns out, the use of gasoline wasn't actually a direct measure of how much wear and tear you put on the road. And now their externality correction measure is - to use a bit of economics lingo - screwed.

So now they're proposing to tax the high-efficiency vehicles in order to get their owners to pay for all those miles they drove. Which on the face of it, seems to make sense. It's getting these drivers to contribute their fair share to the road fund, now that they're not doing it via their gas taxes.

Unsurprisingly, many environmentalists and hybrid/electric owners are outraged about this, saying that this will discourage the use of these vehicles, thereby damaging the environment. When owning high-efficiency vehicles means paying less gasoline taxes (not to mention paying less for travel in general), they say, that's the benefit of having made a more environmentally responsible choice. Raise the gas taxes if you're so concerned about it; that would also cause people to drive less, decreasing the wear and tear on the roads, and it would be taxing the behavior that's the actual problem.

But the two sides are talking past each other. The people pushing the eco-car tax are focusing on one thing and one thing only: that road fund. They are not thinking about environmental benefits or reducing road congestion, and they're certainly not thinking about the distress this would cause the Alliance of Automobile Manufacturers, which is registering plaintive dismay. Meanwhile, their opponents are really not all that focused on the road fund - they keep going off on irrelevant tangents about air quality and whatnot.

It is a bit strange, however, that the Department of Transportation is proposing this oddly skewed way of specifically targeting high-efficiency vehicles, when Oregon, so recently a large-scale experiment with a basic (non-targeted) mileage tax just a few years ago, is widely considered a successful model and good evidence for how and why a mileage tax would work. It used GPS scanners to record mileage and assess taxes at gas stations, and the study showed that it was accurate and fairly cheap to implement. It would also be easy to use in conjunction with a gas tax; people would pay one or the other.

It also had unexpected environmental benefits: the participants paying the mileage tax all reduced their driving compared to the control group. A subgroup whose tax rate varied according to time of day reduced their driving by 22 percent during peak driving hours. The participants reported that simply paying attention to their mileage, and how often they were using their cars for walkable distances, made them drive less.

Given that Oregon legislators keep citing this study as support for their proposal, why don't they just propose what the study's authors did - introducing a general mileage tax alongside the gas tax, not targeted at any particular cars or drivers but applying generally to everyone? It's hard to say, but my guess is that the mileage tax would have to be politically sold as a new tax - because it is. Even though it would be taking the place, eventually, of the gas tax, the primary impact on constituents would still be that they were getting a new tax. Conservative constituents would not be happy with legislators who are spending all their time in office coming up with new taxes to levy on them.

But you know what they might not mind? A tax on all those overprivileged, latte-drinking, greener-than-thou environment types in their stupid $50,000 electric and hybrid cars. They think they're so cool. Well, let them pay a tax on being cool. That kind of new tax doesn't sound so bad. Jim Whitty of Oregon's Department of Transportation showed his hand a bit when he said the reason for the new tax is that "if some pay and others don't, then that's an unfair situation."

You tell 'em, Jim. And if you can sell that, then I've got an idea for a new tollbooth you're going to love.
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