Opinions on implementing heavy taxation for low fuel efficiency vehicles as a policy measure to address rising gasoline prices

Question

I am currently considering a policy proposal to address the issue of rising gasoline prices and their impact on our country. Specifically, I am contemplating the idea of implementing heavy taxation on vehicles with poor fuel efficiency as a means to mitigate the effects of high gasoline prices. However, before proceeding further, I would like to gather opinions and insights on this approach in the context of addressing the issue of gasoline price hikes.

My main considerations for this policy proposal are as follows:

Mitigating Price Hikes: By imposing higher taxes on low fuel efficiency vehicles, I aim to discourage their usage and promote the adoption of more fuel-efficient alternatives. This, in turn, may help alleviate the financial burden caused by high gasoline prices on consumers.

Environmental Impact: The policy aims to incentivize consumers to choose vehicles that offer better fuel efficiency, thereby reducing overall fuel consumption and greenhouse gas emissions. This would contribute to environmental sustainability while addressing the economic impact of high gasoline prices.

Equity and Fairness: The heavy taxation would predominantly affect high-income individuals who tend to purchase luxury or larger vehicles with low fuel efficiency. This could lead to a fairer distribution of the tax burden and potentially fund initiatives that benefit the environment and promote cleaner transportation alternatives.

However, I acknowledge that implementing such a policy may have its challenges and potential drawbacks. Some concerns I have include:

Affordability: Would heavy taxation disproportionately affect low-income individuals who might rely on older, less fuel-efficient vehicles due to financial constraints? How can we mitigate any potential negative impact on vulnerable communities while addressing rising gasoline prices?

Technological Readiness: Are there sufficient alternatives in terms of fuel-efficient vehicles or public transportation options available to consumers? Would the market be able to meet the increased demand for fuel-efficient vehicles, and what measures can be taken to ensure accessibility and affordability of such options?

Economic Consequences: What potential economic effects could arise from this policy? How might it impact the automotive industry, jobs, and overall economic growth? Are there any potential trade-offs or unintended consequences that need to be considered while addressing the issue of rising gasoline prices?

I would greatly appreciate your insights, opinions, and any relevant research or experiences regarding the implementation of heavy taxation on low fuel efficiency vehicles as a policy measure to address the issue of rising gasoline prices. Thank you in advance for your valuable input.

Answer 1

You wrote...

"Would heavy taxation disproportionately affect low-income individuals who might rely on older, less fuel-efficient vehicles due to financial constraints?"

If you want to tax luxury vehicles without affecting low income people that have inefficient cars, you can...

• tax the luxury gasoline vehicles, or

• tax the luxury gasoline vehicles that are inefficient.

Just use a market value threshold, which is not the same as a new vehicle price threshold, to test for luxury. Unfortunately for luxury tax advocates, the relationship between market value and inefficiency is going to be less well correlated as the vehicle ages so it only makes sense for new vehicle sales. Maybe that's good enough for you if you do not plan to make it an annual tax.

A better way is to tax gasoline, which is already happening, but increase the tax, and let people who know how to create luxury have employment helping other people enjoy luxury if that is what high income people continue to want. Then improve the safety net that takes care of the people that are low income but let them decide if they want to drive the same amount using the increase in safety net money or to enjoy the money some other way, which means they drive less. In this way high income and low income people decide what to do.

Some but not all of the high income people will choose a different vehicle. Some but not all of the low income people will drive less and in doing so use alternatives more. Less gasoline will be used for driving, which is what you wanted.

If you're not happy with the level of gasoline related transportation pollution because some high income people still bought an inefficient vehicle and some low income people still drove the same amount using the increase in safety net money, then just increase the gasoline tax until you're satisfied with the amount of gasoline related transportation pollution. If you are never satisfied if even a single person "fails" to change their behaviour then you have political aims superfluous to protecting the environment.