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RIPDA Position on Car Taxes is Wrong.

In their statement endorsing mayoral candidate Jorge Elorza, the RI Progressive Democrats cited the candidate’s commitment to eliminating car taxes in Providence, which it characterizes as regressive. While the Elorza camp has shown a lot of good positions on many issues close to my heart, this particular stance is wrong. The RIPDA folks should explain why they’re taking this stance.

The typical argument for why car taxes are regressive is that there’s a fixed cost for such a tax, meaning that the cost for a lower income driver would be a higher percentage of their income than the cost for a higher income driver. This is no doubt true within its limited scope, but is not the end of the story.

The logical fallacy in the RIPDA position is that it ignores two things: poor people disproportionately do not drive at all, and demand for driving is extremely elastic.

Programs that support driving act as matching grants, meaning that those who can meet a certain basic income requirement—enough to buy a car—can get the benefit. For a lower-middle income family that drives, lowering car taxes may offer a benefit. For a family that cannot afford a car, offering this tax reduction gives that family nothing. This is the case for other car subsidies, such as free parking and federaltax deductions on car expenses, which lower the cost of driving but raise the cost of housing or other goods. The benefit of low-cost driving might be construed as progressive if everyone drove, but in a world where the least powerful are most likely not to have access to a car, eliminating car taxes is a giant affront to our poorest. This, of course, speaks of the matter simply in its most basic market terms, and understates the environmental cost of driving, which also is expected to negatively affect the poorest most.

There are real costs to having cars go through our city, and those who don’t or can’t own cars pay many of those costs more directly than those who create them. It is estimated that drivers pay less than half the costs of driving, excluding additional environmental cost. Providence, for instance, just laid out $40 Million in road bonds to repave streets that have gotten next to no real improvements for biking, and no transit-only rights-of-way. Yet the costs of those road bonds are mixed into general funding, such that if the city hits a shortfall, it has to raise taxes on the general city population, or reduce some other type of services (e.g., schools). This is not progressive.

Costs also include pollution. Consider, for instance, the neighborhood of Olneyville, which is surrounded on many sides by Routes 6 & 10, disconnecting it from what were once extensions of its grasp into Federal Hill, the West End, and Silver Lake (Silver Lake even has an “Olneyville Playground” which no child can access from Olneyville without first crossing under a highway underpass littered with trash and fast moving cars). More than 40% of Olneyville households do not own cars. The solution is not to get more of them into cars. The solution is to make non-car ownership a more comfortable lifestyle, especially in the city.

Defenders of eliminating the car tax might argue that demand for driving is inelastic—People who drive can’t control that they have to drive. This appeals to an understandable urge to have empathy for the commute costs of others. While obviously there’s a kernel of truth to the fact that we’re all somewhat shaped by our environments, and that some people do have to drive for certain jobs, in a general sense the share of people who drive is extremely elastic, based on how costs are distributed. Mode share in cities has been shown to be extremely reactive to how much cost is put on the shoulders of drivers versus the general public, for instance through parking reform. A decrease in the car tax, which forces the city to put an even greater automobile cost onto the general public, might, for instance, mean a higher property tax rate, which in turn would deter denser development of buildings allowing less car use. This creates a vicious circle of induced demand to drive, fueling the perception that cheap driving is a public good in its own right, and aiding attempts to add even more political aid to drivers. This is not progressive.


The RIPDA position calling for reform of the Tax Stabilization Agreements (TSAs) for wealthy developers makes more sense than its position on car taxes, although there is a need to incentivize infill in the downtown and elsewhere throughout the city. One proposal we’ve had to replace TSAs has been a parking tax, which would lower property taxes not just for wealthy developers but also citywide. This would aid the city in infill without targeting only the wealthy. Car tax elimination, however, should not be considered. The costs of cars to the general public through infrastructure payments as well as pollution are high, and reducing the amount that drivers pay directly to these costs will only help the lower middle class and up, while excluding the poorest. It will also balloon the demand to drive, meaning that much of the benefit given even to these segments of society will be eaten up by an increased need to use cars. Just as the populist right often appeals to the need for cheap oil with calls for “Drill, Baby, Drill” a platform eliminating the car tax will immediately make driving cheaper, but not necessarily in a progressive way. The RIPDA position is well intentioned, but wrong, and needs to be changed. We hope that RIPDA will encourage the candidates to change their positions on this issue as well.

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Link citations have been fixed on this post. Thank you to the reader who pointed this mistake out.


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Update: A supporter of the RIPDA position on car taxes wrote to explain why they feel the car tax as it's currently designed is regressive. From the email:

You do have a valid point about the positive effects that the car tax has on shifting transit mode share.  And it is true that non-drivers are disproportionately lower-income.  However, I don't think that this effect is anywhere near enough to make the car tax progressive. 
The first thing you have to understand is the specific policy people are upset about.  Back in 2005, the state had a program where they paid for a $6000 exemption in local car taxes.  Largely to pay for the tax cuts for the rich, the state slashed those funds almost to zero.  So the city wound up lowering the car tax exemption to $1000.  At the same time, they lowered the rate from 7.678% to 6%.  The net effect was that cars worth more than about $25,000 got a net tax cut, and cars worth less than $25,000 got a net tax hike.  The issue here isn't really the concept of car taxes per se.  The issue is making the car tax more regressive. 
If the question is whether a car tax is better than a property tax, I agree with you that car taxes make more sense.  In particular, if the car tax has a large exemption, and the property tax has a higher rental rate, then it's probably less regressive, although that's just my gut instinct.  Even if the car tax is slightly more regressive, it's still better policy because of how it shifts mode share.
This is a more reasonable, nuanced position, but I still disagree.

I do agree that amongst drivers, this makes the structure of the tax less progressive in terms of income redistribution than it might otherwise be, but I still don't agree with RIPDA on this. The state was wrong to have a $6,000 deductible for cars in the first place. Having one operates in much the same way that the federal deduction for car depreciation works--it makes it as if car owners don't have to consider the loss of value on their car as part of the market cost of driving.

I do think that we should have a societal goal to have a progressive distribution of income and wealth, and I realize that having a car tax that is structured this way does not aid that. In my view, that's because this tax isn't in place to serve that purpose. But the best way for the city to approach issues of equity would be for them to develop a tax code and/or set of social services that boost the incomes of working class people without tying those benefits to cars. If your car is a junker, it still costs us a lot to have it on the road. But that doesn't mean we can't have great transit for you, great schools, and affordable housing.

If the city and state don't get themselves wrapped in a variety of schemes to make car ownership less expensive, they can put the money they save from the budget into other progressive goals.

(I do also agree with repealing the tax cuts for the rich that were made in Rhode Island).

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Update #2:

To put things in perspective, both for me as a non-driver, as well as for those reading up on this issue, I made a spreadsheet to show what the tax would be in various cars. The first column is the cost of the car; the second and third are the effective price of the car with a $6,000 deductible and the tax paid, respectively; the fourth and fifth columns represent the effective price of the car with a $1,000 deductible and the tax paid, respectively.



So, you can see that the tax rate does change who pays, so that from around $25,000 up the tax goes down, while from $25,000 and cheaper the tax goes up. If taken as percentages, at the lower end of the spectrum this raises the tax a lot--for instance, a $7,500 car has its tax almost quadrupled.

But my take on this is this: if you can afford a $7,500 car, but you can't afford $400 in taxes on it, then maybe you can't afford a $7,500 car. Drivers only pay half of their road costs--that excludes pollution, car crashes, health costs, and all the other important externals that are affected by cars. The figure for drivers paying only half (HALF!) of their costs is talking just about ordinary costs like road paving, drainage, lighting, etc.

Again, around a quarter of Providence residents don't drive at all, and the city doesn't give them anything in particular for the great gift that is to the rest of us, even though non-drivers in our city are--like most other places that aren't New York--disproportionately poor. So you're already talking about a tax that doesn't affect this group.

A fair tax would probably not be based on vehicle value at all, because if you drive around in a clunker, you're not causing anyone else any less cost than the person driving a Beamer. 

Should we be concerned about making our tax system progressive? Absolutely! But if you look at countries that have very healthy wealth gaps, those countries make people pay their costs to drive. The reduction in inequality isn't measured in how equal people's access is to get behind the wheel. The measure comes from people's access to housing, food, healthcare, education, childcare and the like. By focusing on a very narrow measure of lower middle class annoyance, advocates for bringing back the old system of car taxation want to exempt drivers from even more costs--but that will mean less revenue for the city to take care of its schools, or to lower taxes on rental properties, or do other things that directly affect working class life.

So suck it up! If you can't afford to pay your car tax, guess what? I can't afford a car. Stop complaining!

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3 comments:

  1. Thank for the framing. As a new owner of a car and frequent listener to bitching about the the Excise tax on vehicles I'm of course sympathetic to the "that's a lot of money" and "why aren't the roads in better shape if all car owners pay this", and "where do they come up with the estimate of my vehicles value". The problem of course, is that a new car owner doesn't even think about the car tax until they get their bill, up to 18 months after they've added a vehicle to their household, so they aren't fully informed at the time of purchase that they've incurred this tax obligation, at a very sizable expense. The parts of "car tax" that should be reformed are its timeliness and transparency that it even exists and how its computed when one purchases/registers a vehicle in the first place. (granted somewhat challenging, since 39 towns do it differently)

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  2. Practically mandatory car ownership is indeed a burden on non affluent families. If you think something should be done about this:

    Make sure fresh food at low prices is available everywhere, not just in a few supermarkets that are difficult to reach without a car.

    Replace the hub and spoke transit system with a network of routes so that the bus is a reasonable option to commute to jobs that are not downtown.

    Make sure every neighborhood school is a place anyone would want to send their child and that children can safely walk or bike to it. Too many parents who want the best for their children now feel their only option is to drive them hither and yon to charter and magnet and private schools.

    Now, if people still want a car for pleasure, status or whatever, they can well enough pay the tax.

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  3. No matter how you pay for snow removal from roads, repaving, traffic enforcement, street lighting, pothole repair, parking lots, roadside litter pickup.... and othe road expenditures, some always complains it is burdensome. I think the car tax, with its exemption of the first thousand $ in value, is an unusually progressive way to pay. It doesn't burden the 22% of Providence households with no car ( acording to Statewide Planning though that is a relatively old figure) and it taxes more those households able to afford expensive cars (thus "progesssive") and/or lots of cars (3 or 4% had 3 or more cars) thus taxing households that do the most to add to pollution and congestion.

    I'll note I never heard from anyone that it was "regressive" when bus fares went up 60% during the Carcieri years.

    As for transit, we have a chicken-egg situation, with all the subsidies for cars and "free" parking our transit systems cannot succeed (note it does in central Boston where parking is limited/quite expensive) and we can't give up the car-centric policies because our transit system isn;t good enough.

    With limited transit access, I for one moved to a house where I could bike or walk to my job at Rhode Island College. Perhaps we need to set epectations that more people consider such a startegy to reduce commuting costs and commuting impacts.

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