Don't Externalize the Cost of Cars Even More: Cars Should Pay Their Impacts Through the Car Tax

Assemblyman Brooks Firestone

State Capitol Building
Sacramento, CA 95814
(916) 445-8292
(916) 327-3518 FAX

Re: Car Tax 6/23/98

Dear Mr. Firestone:

I'm all for tax cuts but the car tax is the wrong one to cut. I'd rather have car taxes increased, thank you.

Basic economics suggests that society tax things we want less of, and subsidize things we want more of. Though excess car use reduces quality of life in a community, car use is hugely subsidized.

The majority of car costs are external, costs not paid by the user in proportion to their usage. Examples of externalities include air pollution, noise, 50,000 traffic deaths a year, road construction and repair, traffic law enforcement, war in the Persian Gulf, etc.

To offset these gigantic subsidies so the invisible hand of the market can do it's magic of equalizing car usage with its true cost, mechanisms are necessary to tie these external costs back to car use. The VLF is one way this is done. Gas taxes are another. At their current level, these taxes represent a fraction of driving subsidies. The VLF cut would return $4 billion to motorists, while external costs of driving for the 100 billion miles driven each year in California are about 32 cents/mile or $32 billion/year. Cutting the VLF would cut in funding to localities (cities and counties) that would have to be made up from an increase in sales taxes or other general funds-another transfer from everyone to motorists. What's more, the VLF cut would be strongly regressive, rewarding most those who buy new and expensive cars; those with older or more modest cars would get almost nothing back. Another transfer from everyone to the rich.

If people want to drive new, expensive cars lots of miles, they should pay their way. The subsidy for driving should be gradually phased out, by gradually increasing VLF and gas tax. According to a recent News Press feature, the state gas tax would need to be raised $0.30 per gallon just to keep up with inflation.

At the same time, so there is no net tax increase, we should cut taxes or increase subsides elsewhere, for things which are desirable. In a more rational economy, taxes on nonrenewable resources and activities with high external costs would replace taxes on desirable things, such as earned income, for example, but with no net increase in taxes.

It is frightening to see lawmakers seriously advocating blowing the budget surplus on car promotion, which will be a liability for society down the road as external costs mount, instead of education, which will be an asset for our future.


Art Ludwig

Businessman, homeowner, voter

Santa Barbara, CA