I really like the thought of high gas taxes to both fund gas related operations (like roads and public transit) and to discourage use of a negative product (ie sin tax). I like having lots of varied taxes spread around targeting where they are appropriate such as having property taxes and user fees paying for local benefits. I also like taxing (what I consider) excessive consumption as a way to get revenue for social programs.
But then, all of those forms of taxation end up being regressive, hurting the poor more than the rich. So as a result we turn around and give tax credits like those for home heating oil. Those tax credits then negate the purpose of the tax. As if the negative impacts don’t matter when applied to the poor.
And I think gas tax is the best/worst example of this. Its over consumption leads to countless negative externalities, and it only makes sense to use a tax to discourage its use. But shouldn’t that apply to both the poor and the rich equally? I’ve noticed a trend where people say things like, “The poor need to get to work, and they can’t afford hybrid vehicles.” Applying the tax credit then makes things worse by subsidizing negative behavior.
Yet for the most part we’re okay taxing cigarettes without a low income tax credit (this probably applies more in Canada than the US). We recognize the application of a [regressive] sin tax, and maintain consistency in its application. You end up with few people saying, “But the poor needs to smoke to relax and look cool.”
In the case of a fuel tax, you don’t want to give the poor a tax credit for buying fuel, you just want to give them a tax credit equal to what the tax would’ve collected from them if they kept buying as much fuel as they used to.
So from the standpoint of the person getting the credit, they a) have more money, but b) gas is more expensive such that if they bought as much as they used to, they’d end up breaking even. So then they’re incentivized to spend less on gas, but the ones that absolutely can’t spend less aren’t penalized, they just end up breaking even.
This also makes the tax more progressive, since to fund the tax-credits, you have to raise money from the people in higher income groups that don’t get them.
Obviously you can’t figure out the exact size of the credit for every individual and have to use averages for various income groups and regions, but the idea is the same.
IIRC, this was the scheme in the House cap-and-trade bill that never got through the Senate.
The primary purpose of taxes is to raise revenue to pay for the government. This should be done in the most fair way possible, to all citizens. I think that the flat tax best accomplishes that objective.
Secondarily, certain taxes are put in place like you suggest to achieve some sort of social agenda. If those taxes are considered necessary, then since the objective is to change behavior and not primarily to raise revenues, then they should be applied disregarding their regressive nature.
Right, but by giving tax credits of equal value we say it’s okay to use lots of gas as long as you’re poor. And by using gas they degrade the roads requiring more tax revenue.
There is also the further complication that you end up with money changing hands repeatedly which to me is inefficient. A poor person is taxed $10 when the fill up, that money goes into the general coffers, then gets paid out to the poor person, who takes his rebate cheque and buys $10 worth of gas, so $2 goes to the coffers and ends up going back to the poor person to spend on gas.
Removing the tax on gas would be subsidizing its use by hiding the real costs. Costs that you admit need to be made up by more progressive taxes, paid for by people that can afford to not use gas (ie drive hybrids and live closer to work).
If the tax on gas was put in place to serve a function (in this case both social and functional) it stands to reason it should apply equally to everyone that uses the service. Otherwise, scrap it and make all taxes more progressive to cover the short fall, but accept that it means more gas use.
No we don’t. We discourage the use of gas for poor people, since its more expensive for them to use it. Their credit isn’t linked to the amount of gas they consume, so to them its just more money coming in.
But the point is that gas will be more expensive, so the person won’t put his entire 10$ back into gas, he’ll use some of it for other things, hence consuming less gas.
I don’t understand this sentence.
It will. Gas will be equally more expensive for all cohorts. Again, the size of the rebate won’t be linked to the amount of gas you use.
Ah, you mean the tax where everyone is left with the same flat amount after taxation? I agree; it’s hard to get much more fair than “everyone gets the same amount”. But the conservatives would never go for it.
To the OP, yes, gas taxes hurt the poor more than the rich. Everything hurts the poor more than the rich. That’s what being poor means. The solution is not to avoid policies that hurt the poor; the solution is to try to get people out of poverty.
Which is exactly the conflict that’s bothering me here.
If the purpose of the tax (in this case on gas) is to either pay for related services or discourage use it seems it should apply to all users equally.
At the opposite end of the spectrum imagine if we had a food stamp system for gas. This would recognize that the poor need gas to survive and thereby subsidize them, and certainly help with easing the effects of poverty.
Except that now leaves us with two problems: one is that we still need to deal with the original tax which was either paying for roads or decreasing demand. The other problem is that we now also need a tax to make up for the subsidy.
The gas tax (in this example) is regressive because it’s meant to apply equally to everyone that uses gas. The roads and environment don’t know if you’re rich or poor. To then try and offset the regressive nature defeats the purpose of the tax. We don’t end up offsetting demand, or providing revenue for roads.
It’s possible (although unlikely) that the rich could afford to move away from needing gas, as if they all went and bought Chevy Volts. Now it’s only the poor buying gas to use in inefficient older vehicles that contribute to smog, and it’s smog we’re trying to avoid by having the tax. Without the revenue from the gas tax a government would have to look for where it can get revenue and decide either in increase income taxes, or tax Chevy Volts.
I realize this isn’t the most well thought out process. But the general theme here is that if the tax is meant to pay for something specific, or reduce demand, it needs to be applied equally to all users. But that equality will necessarily mean a regressive tax.
I think you missed Simplicio’s point. You offset the regressive gas tax on average with an offsetting tax break or subsidy. But the subsidy is not tied to gas consumption.
In another recent thread I argued that the gas tax revenue should go into the S.S. fund, and that the first $X of personal income should be made exempt from S.S. tax (where X is whatever it needs to be to offset the gas tax revenue). This would have a number of benefits, especially to increase employment.
In such an approach, poor people with long commutes or gas-guzzling cars are penalized, but that’s good. That’s the point! (The gas tax could be phased in over years(*) to mitigate the “unfairness.”)
This approach would mean that a tax related to automobiles would not fund a service related to automobiles, but the strange idea that government taxes should pay for related services has always been wrong-headed. That tax and spending can be disconnected is an advantage of public sector activity vs private sector activity.
(* - To those who will argue that the need for gas tax is too urgent to allow “phasing in over years” let me remind Dopers that a large majority of rationalists favored steep gas taxes more than thirty years ago.)