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Why Econ. 101 Isn't Enough to Discuss the Car Tax

If you've missed it, Economic Progress RI wrote a very good report explaining the complexities of the Rhode Island car tax. I have hectored them annoyingly for some time by email, and I felt really validated when their report concluded pretty much the same things I've been saying on a number of different fronts. Read it.

I got into a bit of a scuffle online with Sam Bell about this. Sam is a great person for this kind of debate, because 1. We both know we more or less have the same guiding values, and 2. We are both able to be really pedantic and snotty and sarcastic and vicious online and still be friends. So Sam's a good guy. Sam Twitter-summoned Doug Hall, an economist at Economic Progress RI, and Doug had this to say:

The argument Sam makes boils down to this: poor people may pay less car tax, but that absolute amount is more of their income than the larger amount that wealthier people pay is of their income. I actually agree with aspects of this statement, if it's bounded only by people who own cars. Poor car owners get more back, should be how it's stated.

And that's a significant exception, in my opinion. It's like saying, "Jacksonian Democracy was a very equalizing force." Well, er, maybe, if you discount the impacts it had on the Cherokee and African-American slaves. Or "Donald Trump is a populist." Oh really? A populist for who?

The demographics of who can and does own a car mean that trying to fit economic redistribution through a car tax funnel ends up producing some really distorted results. And that was one of the major findings that was brought up in the Economic Progress RI report: Yes, it's true! People of color are far more likely to live in places where the car tax is high. But they are also far more likely not to own a car. So the person living in Olneyville who owns no car is not likely to breath a big sigh of relief knowing that an East Sider somewhere got a tax cut on his/her Priuses (Prii?). People of color are left out, and I'm sorry, but that matters:
Sam's chart (Yes, I love Sam so much, because he made a chart!) is also wrong because it ignores the multiple columns of information you need to make a decision about regressiveness:
1. First you need to know what the percentage of a person's income is paid (Sam has this).

2. But you also need to know what the money goes to (Who benefits most from the services?).

The question asked has to not just be who pays a tax and what percentage of their income that tax is, but who benefits from services and percentage that is. If giving a poorer person $100 entails giving a wealthier person $1,000, it may be that the $1,000 is a small part of the wealthier person's income, but that $1,000 also perhaps enabled the poorer person to gain $300 in services (these numbers are hypothetical). If you gain $100 and lose $300, that's not a gain. So then the tax cut looks like this: Poor -$200 tax cut (pay $200 extra) Rich: $1,000 (get a $1,000 tax cut). 

I don't actually know for sure how Rhode Island's benefits are divided, and it's a valid question. But what we're essentially doing is deciding that driving is a benefit, and that we should budget to subsidize it for those who have the capital to buy a car. That's a decision, and we have to weigh that against other decisions, like maybe having free healthcare, or better schools. I worry that this is going to result in a push for fewer services.

3. What alternatives exist to the proposal as a means of giving people tax cuts? That is, the world doesn't exist on a binary within one issue. If lowering the car tax could give some money to poor people, the question also has to be asked if another policy would give more money to poor people, at the same or lesser cost. Look at how much we're spending on the upper 20% versus the lower 40%. Inexcusable:
Sam doesn't think this matters, but it does. Because the 34% of the budgeted $215 million is enough to give a major tax cut to poor people that is instead not being given. Opportunity costs matter, and considering all the varying spectra of possibilities that different policies afford is what makes real life economics different that Econ. 101.

Look at how the absolute numbers play out:
$97 to me is more than $1,849 is to a millionaire, but if we just increased the Earned Income Tax Credit, the policy chart might like more like this:

Bottom 20%  2nd 20%  Middle 20%  Fourth 20% Last 20%

$537               $358         $179                $0                  Pay an extra $179

(I took $215 million, divided it by 6, gave three parts to the lowest 20%, two parts to the second lowest, and one part to the middle, zero to the fourth 20%, and had the top 20% pay an extra $179. We actually don't end up spending our whole $215 million that way, because of the top 20% tax-- maybe we could put that to transit. And remember, I did this by assuming the population of RI includes children, so that means if you lived in a family with kids, my calculation could give you an extra stipend for each of your kids).

The point is, giving (some) poor people $97 from a car tax reduction is better than giving them $50, and somewhat better still than cutting their hands off, but that doesn't mean that we have to view everything through the lens of that policy. The money could be divided up in an infinite number of ways, and there are far more progressive ways to do it than anything that's been proposed. So let's have some imagination!

4. Finally, it's paternalistic to suppose that what poor people really need is a car. Poor people might like a nicer apartment or house, or one that's closer to work so that they don't need that pesky car (or one near their kid's school! Or a better school!). They may want more vacation time, or they may want better food. They may want a couch, or time and money to take an art class, or whatever else. Assuming that we should artificially lower the price of driving isn't just about giving money to poor people. Even if we got past the imperfect metrics by which that is being accomplished-- I would argue this is a piss-poor plan for redistribution-- we could do this without the element of car subsidization.  Driving can be a freeing thing, but when driving is made a necessary thing, it is no longer freeing. Unfortunately, the web of subsidies for cars are part of what enslaves people to them, because it changes every decision that everyone in the web makes: employers move further away, transit systems wither without riders, housing in inner-cities decays in value (or in the case of expensive and gentrifying neighborhoods may seem like a bad deal if policy priorities subsidize car commutes from further away rather than upgrades to housing location). When the recipient of this car tax refund finds themselves living further away from work to afford the rent but (thankfully) having a car so that they can sit in traffic and be stuck away from their family, we can thank bad policy decisions for creating their unhappiness.

All of that creates a situation where the very poor-- those people left out of driving-- get nothing. That's unfair, no matter how you swing it.

5. Climate Change:

I don't have to explain this, do I? If we don't fix climate change, then we're toast. 

So Sam is wrong, mainly because he's taking something that Economic Progress RI admitted is a very complex, multivariable problem, and reducing it to one variable as if it's an Econ. 101 demo. I think this is misleading. Sam should rethink this.



  1. I learned to drive at age 40, roughly when I got married. I didn't need a car as a single 30-ish man in Providence, but we needed two drivers for my wife's activist-related travel and I also knew that someday I might have to drive my wife around town.

    Car tax rates are notably regressive whenever Providence taxes cars based on what they'd theoretically be worth if we fixed them up like new. We don't fix up our 22 year old car and our 16 year old car. Several people have bumped into our cars, their fault, and we simply said, never mind, we'll drive around with that dent in the car forever. I'd like to see a BMW actually taxed every year on what it would theoretically be worth if it were to be hypothetically pimped out by a top auto body shop someday.

    Road wear and tear and road services provided could help determine what a subcompact car, a pickup truck, a liquefied natural gas tanker truck or a semi should pay in taxes. Also, some of these cause more asthma than others.

    For me, climate change is 99.99% about what I invent (if it sees the light of day, or if I'm at least faithful to that process, regardless of what other people don't do with it) and 0.01% about what carbon dioxide I create. I wish that other people followed the same drill.

    Anonymous as usual,
    Paul Klinkman

  2. James, I agree that the MVT is regressive, and this new hair cut proposal does nothing to change that. However, the original state car tax cut that exempted the first $6000 was quite progressive. Sam should make a new chart and compare.