Is a gas tax regressive?

This issue came up recently in Prof Goose's plea for Congress to put a national gas tax in place. In a comment, I made noise about a gas tax being regressive--that is, poor people would be affected disproportionately. I advocated rationing instead. Yes, that's a lot more drastic than a tax would be, and probably not something we could even look to other industrialized countries to find a model for, but I think it could be more fair than a tax.

Well, OK, let me try to back that up, or at least present you with some of what people are saying about gas taxes.

One argument against the tax being regressive seems to go like this. Since a smaller percentage of poor people own cars, the tax doesn't really affect them that much. To back that up, this New Jersey report cites some findings of a 1997 study based on the US Department of Transportation's 1995 Nationwide Personal Transportation Survey:
  • When low-income households do own a car, the car is quite old. The average car is 11 years old in low-income households compared to 8 years for other households.
  • People from low-income households are more likely to walk to work and are more likely to use public transit - buses as opposed to trains - to get to work.
  • People in low-income households are nearly twice as likely to walk for other than work activities as well. Because so many trips are made by walking, the space in which people in low-income households travel is more constricted than for others. For low-income single parent households, about 66 percent of trips are three miles or less.
I find this argument specious. Perhaps a smaller proportion of the lower middle class and people at the poverty line have cars, but for those who do, a gas tax would be especially detrimental. Imagine a single parent working 2 jobs to support 2 kids in a place that doesn't have decent public transportation. What if the increase in the gas tax makes it so expensive for the parent that it's no longer feasible to drive to the second job? Now not only does the second income disappear, but the price of gas is also higher. Or, take Barbara Ehrenreich on how drug testing affects upward mobility:
I realized another thing about drug testing when I had to go through it: You have to drive to apply for the job, drive back for an interview, then drive again to some clinic somewhere for the drug test. If you're paying for gas – which was close to two dollars a gallon last year – paying for a baby sitter, and you're not being paid to do this, it becomes a big disincentive to changing jobs.
Is it really fair to say that just because "only" 70% of the lower class have cars versus 80% of the middle class (this is from the NJ report!), the class as a whole is going to be less affected than wealthier people? And therefore we can throw out the idea that a gas tax is regressive? I wouldn't want to be the one saying that in public.

Fortunately, there are alternatives to a simple gas tax. One is a mileage tax, as j points out. This is already being tested in Oregon, where researchers from Oregon State University have developed a GPS device that is integrated into the car's odometer. A computer at the gas station will read the device and charge the driver accordingly. Well, I haven't really thought through the social ramifications of a mileage tax, but the logisitics sure seem difficult. How expensive will it be to retrofit all of America's cars with these devices? And let's not even get started on the computers at gas stations. (NB1: In an earlier comment, Engineer-Poet said "Mileage taxes are just a way for SUV drivers to push the costs of their environmental and pavement damage onto drivers of lighter and more economical vehicles". NB2: Here's one pretty bad article about the cons of a mileage tax. I'm sorry, but I don't care if you're worried about the price of orange juice rising. That's exactly the point.)

Another idea is a tax credit of some sort. This could be either in the form of lower payroll or income taxes, as conservative Charles Krauthammer argues for, or there could be a rebate for people who fall into the lowest tax brackets. The first case would be a revenue-neutral shift in taxation, but it may still create a disincentive to waste gas. The second case doesn't seem like such a bad idea to the liberals, but it isn't likely to garner much support.

So, will a gas tax help without unduly burdening an already suffering part of our population? Perhaps if it were implemented well, it would be. On the other hand, many people have speculated in previous comments that the American entitlement mentality--at the level of both the gas consumer and the (sub)urban transportation planner--isn't going to change until there are physical shortages. We should try a(n enlightened) gas tax first, but don't be surprised if rationing is the only thing that helps.

Go to the postings for today

Technorati Tags: ,

I think we need to make vehicle license renewals higher for gas guzzlers (or indirectly, by vehicle weight). That would push the worst offenders out of the fleet (old tired cars, with low value, but high renewal costs), and reduce the life of the too-many SUVs on the road today.

I think there are enough small cars (new and old) out there to make it work.

BTW, the "make all freeways into toll roads" idea also has merit.

I posted a few days ago on the benefits of revenue neutral gas taxes and so was glad to see you link to the document with this paragraph, which is similar to my comment.

"For example, a much higher tax on gasoline would provide a strong incentive to drive less and increase fuel efficiency in cars. Normally, a gas tax would hit poor and working people harder than the wealthy, making it a regressive tax. But if at the same time income taxes were reduced for low and moderate income taxpayers, then the higher costs of gasoline would be more than offset by lower taxes overall. By creating disincentives to pollute up front and progressive tax relief at the back end, the costs of transitioning to a more sustainable economy would be borne by the wealthiest sector of society."

However, the overall arguement presented by Corporate Watch is a radical one that at the end offers a strategy of brinksmanship that will wind up nowhere. Like many of the more radical movements, if it doesn't hurt corporations they aren't interested.

It is easy to sit around stewing about how the rest of world isn't smart or good enough to buy into our idealistic vision and to shout the motto of no compromise. But the perfect is often the enemy of the good.

I have worked with committed environmentalists around the world and have found that more progress is made by finding commonalities, aligning interests and working together. I get depressed when I see that in the face of huge issues such as climate change, some people want to attack anything that doesn't match their ideological view of perfection.

Canceling all subsides to fossil fuel companies would provide the same endpoint as a tax--the cost at the pump would rise and some demand would be destroyed. Such a move actually is in tune with the neoliberal trade mantra of freeing markets from government interference. But such a well intentioned move currently is impossible politcally. It's possible to enact gas taxes when the revenues are dedicated to financing public transit. This is often easier to do at the city/county level than the state. A cash bounty could be offered for recycling SUVs. An additional tax incentive could be offered to those trading in their SUVs for any car averaging 35MPG+. Strongly initiate photoradar ticketing systems with fines indexed to vehicle MPG; this will directly "tax" the real fuel abusers and can be implemented with law and order/patriotic rhetoric with little opposition. Several cities have ratified the Kyoto protocol and could pursue these and other means to reduce emissions and thus fuel usage. And the Crtical Mass folks would add, make cities more biker friendly.

Things to consider: there are quite a number of rural poor who (given the lack of public transit in much of the united States) would be hit hard by such a gas tax; given the current income tax structure, many of these people pay none to very little income tax, meaning that an income tax cut isn't very useful in balancing out a hit to the truly poor. A cut in payroll taxes would be a much better way to cushion the effects of a gas tax increase. I myself would like to see such a thing, but, given the demagoguery over the issue in the last presidential election, I don't have high hopes for seeing a saner policy implemented.

I'm fine with gas taxes, revenue neutral or not. I think they are impossible right now though. People feel "injured" by high pump prices, and "want someone else to fix it." I don't see them accepting responsibility so directly. That was really why I suggested the renewal thing, which is less direct. But again, no doubt people would just feel "injured" by that.

A lot of peopel talk about tax credits to solve things. They have the political advantage that they don't "injure" anyone, they just reward.

I think it is pretty shameful to be so reliant on credits for energy policy in time of high deficit and debt ... but who knows, if the economy falters for lack of energy, maybe that is the place to put Keynesian spending.

Short of that though, I see weak credits as being ineffectual.


we have a tool road system here in Houston which has become an entity all unto itself - it is now a "revenue stream" for the Toll Road Authority, which has taken on a life of it's own. Althought the roads are now paid for, the tolls are actually rising. Nobody seems to know where the money goes either.

But I would buy the toll roads IF the extra revenue (after bond payments) went into a mono-rail or other rail fund for development.

Even then, you have to be careful. Houstons first rail line was installed a year or so ago. It runs from the Medical Center to downtown. Funny, nobody lives downtown....and the people near the Med Center work there, not downtown. If you are going to run rail, make sure the mandate is to run it to suburbs to reduce commuting. Otherwise, you end up with a toy train system that helps few people.

I have a problem with tax rebates - they do not take cash flow of low income people into account. By taxing them up front and rebating them at the end of the year via IRS, their weekly cash flow is reduced. This is definitely regressive IMO. Sure, they get it back in lump sum as paying less taxes, but it removes money from their already thin wallets. Willpax idea is better here.

karlof - I love the idea of indexing tickets to MPG!! And speeding tickets should be allocated to rail - that would help. Since we all know that, long term, road usage will decline.

I do think whatever the tax finally is, it should not be a rebate, because this does nothing to resolve our problem. IMO, whatever we tax should be dedicated to improving old or installing new rail systems, and politicians should have their hands tied from raiding this cookie jar until the rail changes are complete and paid for. If this money is allowed to sit in an account at all, they will pass a law to get their hands on it - make no misteak!

oops! above is me...

I think the rationing approach is dead-on.

And my reasons are not economic -

How effective have so-called sin taxes been in curbing harmful behavior, specifically the efficacy of taxes on cigarettes in getting people to kick the habit.

It seems to me that if we want the nation as a whole to reduce our energy use significantly then rationing would be the most effective and the most instructive as well - people would really have to start thinking about where they purchased their home, that quick trip to the big box, and joining a t-ball team that practices across the city.

Maybe it's funny, but I'm not that concerned with where tax, tolls, or penalty money goes. Other than paying down government debt.

We have here in California (and I think the nation overal) steadily increasing VMT (vehicle miles travelled) per capita, and per family. Here's a bunch of data:

If we want to make any short-term change to national gasoline consumption, we can't do it by an immediate change to the fleet. We have to reduce VMT - by tax, toll, or penalty.

And out here we have clogged free-ways, with everybody idling along lock-step at 10-15 mph. I never would have dreamed that I'd become a toll-road advocate (that is, de-free-ing free-ways), but maybe as part of my Peak Oil conversion, I've become one.

The idea that the gas tax is regressive is STILL not supported by the facts.

Yes, most poor families own cars. They're more likely to be sitting in the driveway unused, and when used, are driven shorter distances and get better mileage than Eddie Exurb's Expedition.

You focused on one out-of-context number (80% vs 70%) without considering the other factors above.

Poor peoples' VMT is more like 1/3 to 1/2 of middle class VMT (especially the upper-middle-class which disproportionately infest our exurbs). And when you factor in fuel economy (around here, poor folks drive late 80s and early 90s cars, about half/half Japanese/US, getting 20-25 mpg overall compared to the 15 mpg the suburbanites get in their SUVs), the impact is further diluted.

M13K--With all due respect, and since I don't know your background, I would really appreciate it if you could point me to some research showing that what you say is true. For one thing, the version of the poor that you're talking about seems to be most true of the urban poor who may have other options. The rural poor, on the other hand, spend a lot more time in their cars (I get this impression from reading Barbara Ehrenreich's stuff, among other sources.) I was not impressed by the arguments in the New Jersey report, so if you have a better source to back up your claims, I'd really love to see it.

Love that word "regressive"! And of course its partner "progressive". Such a world of buried assumptions in there. It's quite artful wordcrafting. Who could oppose a "progressive" tax, or support a "regressive" one? It's pretty ironic when you realize that a regressive tax is one where everyone pays the same rate!

It's amazing how you can smuggle an entire value system and theory of political economy into a simple pair of words.

halfin: I think the progressive/regressive terminology is pretty standard. If you don't like the progressive/regressive terminology, what do you suggest as an alternative?

Also, a tax where everyone pays the same rate is called a flax tax. These definitions are from Wikipedia:
Progressive tax: a tax that is larger as a percentage of income for those with larger incomes
Regressive tax: a tax which takes a larger percentage of income from people whose income is low
Flax tax: a system that taxes all entities in a class at the same rate


I love it when couples blog together.....



I previously referenced a blog posting of mine which referred to the studies I've read on the issue. It's certainly true that the rural poor would be harder hit than the urban poor, but are there so many of the former compared to the latter to make the fact that the urban poor drive so little a non-issue?


I should state that I found the New Jersey study pretty good overall, and that I believe your preconceptions have colored your reading of it. They, like most people, went into this no doubt assuming they'd find out how badly the gas tax hurt the poor, and were thus probably surprised by the actual results.

It matches the observed reality here in Austin (far from a transit powerhouse) - when I drive around east and north-central Austin (pockets of poverty here), I see a lot more bus usage, a lot of cars left in the driveway in the middle of the day, and those cars aren't SUVs or pickups; they're 1989 Honda Accords or 1985 Olds Cutlass'es (not Priuses, but a heck of a lot better than the 14mpg most of my coworkers get).

I know, J, it kinda *sniff* really *sniff* gives you hope...

and SG, stop making sense, damn you.

ianqui & M1EK -

In Houston, if you don't commute you don't work. The buses are mostly full during rush hour, and the illegals pile into trucks. So the base poor are on buses or old cars - everyone else is commuting. But the kicker is that the single driver cars outnumber the buddy system cars about 10 to spite of the HOV (high occupancy vehicle_ lanes.

M1EK--Yes, I read your earlier post. That's where I found the NJ report.

I hope you forgive my skepticism--I am a scientist, which means that by nature I'm suspicious of claims that don't reference any research on the issue. In fact, I have banned the use of the word "intuition" in my lab, because I don't care if it's someone's "intuition that X is true". Facts. Experiments. That's what I need. The other report you cite, the Berkeley one, has no references in it at all.

In the MIT paper, which the NJ report references, the author James Poterba finds that a gas tax is "less regressive than conventional analyses suggest". Fine. That might be true. But it's still regressive. So the real question becomes: Is it so regressive as to be an undue burden on a certain portion of the population? Well, I guess that depends on a lot of political factors, but even Poterba notes that there could be adjustments in other areas of the tax code to offset whatever burden there might be on the lowest tax bracket (see the last paragraph in this section).



Look, we have other regressive taxes. The sales tax is regressive, but we're not clamoring to change that, are we? You say yourself that the poor aren't using their cars frivolously--if anything, they're driving less than 10 miles to work, not joyriding like Ernie the Expedition Owner is. So I don't think it would make to much of a difference to the government if we cut the poor some slack here, but it would make a huge difference to their lives.

Sorry, one last clarification. A gas tax might be a good idea if implemented intelligently. That is, we could cut the poor some slack by lowering the payroll tax for the lowest bracket or expanding the Earned Income Tax Credit, as Poterba suggests.

I like the spirit of rationing, which sounds kind of strange, but in war time that's what you do - take extreme measures, everyone kicks in and suffers somewhat equally. Carter called our energy dilema the moral equivalent of war so it makes sense. However, as in war the people have to agree with the cause or severe social disruptions would occur. Rationing has its problems. Do you get extra rations if you have children ? They all may need to go to different daycare/activities. Are we rationing based on how far people have to drive to work ? Can I sell my rations ? The more rules (and there have to be rules) the less efficient a rationing program is. Probably be more efficient to tax the gas and then give gas credits to lower income people if you really want to take out the regressiveness.

Here is my proposal --
We institute a significant increase in gas tax over several years. Something like 50 cents in year 1, $1.00 in year 2, $2.00 in year 3. All money raised from the tax goes into a federal pool. About 4 times a year, the money in the pool is sent, in equal shares, to every person who filed a federal income tax return.

This is obviously revenue neutral. The beauty of the scheme is that it sets up winners and losers. The winners get a bigger refund than they paid in gas taxes. It is actually kind of hard to be a loser, because the pool includes money that business paid in gas taxes, and they get no refund.

The appeal to this proposal is psychological -- do you want to be a winner? If so, use as little gas as possible.

one problem I see with either of your proposals, Dino and Ed, is who's going to be charge, instituting the taxes, and to what purpose...The Rs will still be in power after 2006, and will likely have both houses of Congress after '08 with the very low number of competitive states/districts in play...

Of course, I am not sure that the Ds would do much better as they are presently constituted, other than that they portray themselves as more likely to tax and to sponsor legislation like New Apollo that would have to be paid for somehow...

Both parties are bought and paid for by oil and auto we all know...

Actually, Carla, "sin taxes" like those on cigarettes do have an effect. According to a review article published in 2000, for every 10% increase in the price of cigarettes, demand falls by 4%. The effect on demand is more pronounced on younger persons, low-income people, and people with less education.

That would seem to agree with Ianqui's point that gas taxes would disproportionately affect the poor.

Holy cow, PS, what the heck are you doing here??!! :)

(just're welcome as always...I kinda missed your wit.)

Gas rationing is a HORRIBLE idea. It would cause tremendous economic harm for no reason. The free market takes care of rationing by causing prices to go up so that people use less. If people can't afford gas then they should take the bus.

the problem with market solutions is that they are not very democratic, and favor the rich over the poor! Market solutions work very well if the playing field is level. But when the playing field is as unlevel as it is, market solutions are VERY unfair. Please look at wealth ownership figures in the US See for example Go through the charts and figures, and come to your own conclusion.

Excuse me, but this really is not that difficult to fix.  You've got two things you can adjust; use them both:

1.  Place a deductible on employment taxes, maybe with an extra rebate for poorer people whose income isn't from wages.
2.  Adjust the fuel tax by region, so that people in sparsely-populated areas where they have to drive a lot pay roughly their tax savings, minus a bit.

Ed:  The guy who is chronically short five bucks until payday is not going to be able to wait until the quarterly rebate; he'll be unable to drive to work, thus out of a job and bankrupt.  If you're going to give money back to him it's gotta be in the weekly paycheck.

How many of you here make less than $6 an hour??? those that dont which will probably be most take all income for one month above $6 an hour and give it to charity. See how it effects you ;)

More than likely alot are so wrapped up in what they have that going to $6 would crush them. Now think about those at the bottom again. they have to pay health care, auto insurance, rent, food, gas, electric, alot of the same things you have too. think its easy?? not a chance. If you going to tax first you have to bring the bottom to where it should be $10 an hour at least.

In order to be effective the money has to come from the top otherwise your will destroy even more the bottom which is barely hanging on as it is.

Take the money from the oil companies for selling it. encourage them to make gas cheaper and find better ways to refine it. Sure it will raise the gas price some, but thats going to happen anyways. Place extra taxes on new vehicles tht do not get more than 35 MPG. reduce taxes on those vehicles that do get over 35 mpg. again the idea is to get more people to buy low mileage vehicles and the manufactors to make them.

If your really daring make the government balance the budget or they take a paycut instead of these yearly increases we see today. Those people living above 30k should pay more at this time for national security and the well being of the country. why?? because most of the soldiers who fought in the wars and protected this country came from those who have the least.

Its time to step up with your extra $$$ and help the country out. You expect the lower people to go and serve and protect you but what do you really give in return?? Its been take take take and me me me for too many years and its time to put a stop to it once and for all.

I do not think the politicians can do it alone they are too worried about staying in office and being bought off by the lobbyist and special interest. Make bribing illegal because thats what it is. enforce full disclosure of special interest groups and lobbyist and make them show whats going on.

There are soo many things broken with this system it would take a president and a government who throws all the hogwash aside and for once start working on the thing to make the country solvent again.

Thats basically a pipe dream that will never happen.

Hey, Prof. Goose, you know I can't really stay away!

Rajiv, I know that the top is richer than the bottom. That's why high gas prices cause less consumption. The top 10% doesn't care if the price of gas doubles, but some people in the bottom 90% might use less if prices go up.

In Europe, everyone deals with gas that's $5 or so per gallon. Most "poor" people drive cars that are bigger and more expensive than they need. It's rare to see a true economy car on the road.

Income inequality has nothing to do with oil.

JD:  The essential parts of your prescription have been tried already.

They are called Corporate Average Fuel Economy standards.

They did not reduce petroleum consumption (it continued to grow).  You cannot have falling consumption with cheaper fuel unless you force scarcity some other way, e.g. rationing.

"Those who do not know history are doomed to repeat it." -- Santayana

"History repeats itself, first as tragedy, second as farce." -- Marx

You make it cheaper to buy low MPG vehicles and more to get the gas hogs it will help. Making the government balance to budget or lose pay will help. taxing those who have been getting more for the last 35 years will help.

you try all those at once plus a few others and it all will help.

being blind to the truth has been going on for long enough. Americans ALL need to stand up and help out the country for the sake of the country.

Yes gas prices will rise and yes people will use the same amount. but at the same time making the OIL companies more responsible will increase the amount of oil per well and slow down this decline.

To say it has been tried is hogwash it hasnt been tried not 100% fully enforced for the health of the nation tried. But more oh we rich guys are going to throw up a smoke screen tried. Do it for real and you'll see results.

BTW what do you think about making $6 an hour?? could you go there today??

yeah its been tried alright. *rolls eyes*

JD, I'm sure you mean well, but your lack of historical literacy and perspicacity make it nearly impossible to have a reasoned discussion with you.

Please do not take my failure to dispute things you say as any sign that I agree with them, now or in the future; I'm just getting tired of writing explanations that you don't understand.

I think your lost in your own world as well my freind to each his own :)

friend or fiend?? lol!!!

I read your explanations and I dont see any real common sense going on there. I feel you do not understand whats really going on out here in the real world. To me your abit lost in some realm of make believe. Its ok I understand you are only a product of your enviroment just like the rest of us.

In my world, US crude consumption continued to rise despite increasing CAFE requirements; people reacted to the lower per-mile costs by driving more.

If you ever swing by Earth, I'll be happy to show you around.  We have a (dismal) science here that might interest you; it's called "economics".

EP -

Calling economics a "science" is a bit of a stretch, even for many economists....

hehe one question just to see where you stand.

Do you believe in the trickle down effect??

You should read the CBO's Reducing Gasoline Consumption: Three Policy Options

From the Preface:

This Congressional Budget Office (CBO) study--prepared at the request of the Senate Committee on Environment and Public Works--compares three methods of reducing gasoline consumption: increasing the corporate average fuel economy (CAFE) standards that govern passenger vehicles, raising the federal tax on gasoline, and setting a limit on carbon emissions from gasoline combustion and requiring gasoline producers to hold allowances for those emissions (a policy known as a cap-and-trade program).

The study weighs the relative merits of those policies against several major criteria: whether they would minimize costs to producers and consumers; how reliably they would achieve a given reduction in gasoline use; their implications for automobile safety; and their effects on such factors as traffic congestion, requirements for highway construction, and emissions of air pollutants other than carbon dioxide. In addition, the analysis examines two more policy implications that lawmakers may be concerned about: the impact on people at different income levels and in different regions, and the effects on federal revenue. In keeping with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations.

From the intro:

Furthermore, any given decrease in consumption could be made at a lower cost through the gasoline tax than through CAFE standards....

Yup.  JD, are you going to react to this or ignore it?

If instead of adopting the CAFE standards, US had decided to impose high taxes on gas and diesel by 1978, and the high prices had continued, the Auto companies would not have been able to use the "Light Truck Loophole" and we probably would not have had the SUV explosion.

It is possible that the price hike alone may have been sufficient to drive the automakers to produce more fuel efficient vehicles. But somehow I doubt that it would have happened without some other kind of government intervention (maybe research and production incentives like that provided to wind and solar)

However, gas price increases were deemed "Poilitically Unacceptable" and the CAFE standards with loopholes were adopted instead.