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Why RIPEC is Wrong to Focus on the Car Tax

"The tears of the world are of a constant quantity. For each one who begins to weep somewhere another stops. The same is true of the laugh."
                                                                   
                                                                                             --Waiting for Godot, Samuel Beckett
 
I've been covering the Jaguar Tax Cut proposed by Speaker Mattiello for quite some time, and I've covered quite a lot of angles on it. One angle I haven't covered closely is the notion that we need to adjust the car tax because it's more of an outlier than other taxes in Rhode Island.

The problem with this argument is that it ignores the opportunity costs of lowering the car tax: we may be more of an outlier on car taxes than other taxes, but that's a good thing. Why not lower another tax on something we actually want to grow?
Rhode Island does have the #1 car tax in the country (#1 like "We're Number 1! We're Number 1!"). We seem to be the only state coming close to making driving pay its true costs. That's a good thing, and we should keep it: for equity, for the environment, and for our budget. We have the best car tax, not the worst car tax, and though we should make changes to it-- like having a "one state, one rate" equalization between municipalities-- we should not be changing the overall effective car tax rate. 
But what about this idea that the car tax, being so much higher than our neighbors, causes people to leave? This argument doesn't make sense, when it's examined.
 
Rhode Island's overall property tax levels are considered high across the board, even though car tax is the highest. Here's what RIPEC, on the opposite side of the issue, has to say about property tax climate in Rhode Island:
Property taxes remained the largest driver of the overall tax burden in the state, accounting for 44.6 percent of all FY 2014 tax revenues in Rhode Island. By contrast, in the U.S. as a whole, property taxes only accounted for 31.3 percent of total state and local tax revenues.  The state’s property tax burden remained among the highest in the country in FY 2014, ranking fifth highest as a share of personal income and seventh highest per capita. Nominal property tax collections continued to grow in Rhode Island between FY 2004 and FY 2014, increasing by 38.4 percent. Reliance on the property tax also increased over the same ten year period – property taxes as a share of total tax revenues increased by 2.8 percentage points, from 41.9 percent in FY 2004 to 44.6 percent in FY 2014.
RIPEC's John C. Simmons was among the people who came to speak for the Jaguar Tax Cut last night at the Senate Finance Committee, arguing that because the car tax is an outlier, it should be the priority target for adjustment. But that logic doesn't make sense: people live in houses and apartments (with a few exceptions, but almost none of those by choice). If they own a car, it's parked at the place they live. Lowering property taxes on real estate, or lowering regressive taxes like the state sales tax (at 7%, quite high) are also ways to attract people to the state. If you give someone $100 back in car tax, it's not any more enticing to them than $100 in real estate tax cuts, or $100 in income tax cuts, or any other $100 tax cut. And the people that receive these tax cuts bring their cars with them.
 
Unless they don't, of course. One of the key reasons we should keep a high car tax is that we don't actually want people to drive. It's fine if they do-- that's their choice-- but we want to make sure they pay for the full costs of it when they do. We certainly don't want driving to be a growth sector of the economy. When you look to places that are successful from both a market growth perspective, an equity perspective, and an environmental perspective, one of the key metrics these places have is a high charge on auto use. Those high charges, like Denmark's 180% excise tax on cars, allow for healthy social spending (though not higher than the U.S.'s spending, better spent. High car taxes mean lower healthcare costs and transportation infrastructure costs, like in Germany. It means focused smart growth in the parts of the economy that make us happy-- going out to a restaurant, sitting in a nice park, having a nicer house, or more time with our family-- instead of the parts of the economy that just grow carcinogenically due to induced demand.
 
The RI Senate Finance Committee seemed open to the idea of considering opportunity costs of this giant tax cut. It should do that. Even if Rhode Islanders' property taxes on housing were middle-of-the-pack compared to their tax on driving, we'd do better to develop healthy housing upkeep in the state than to subsidize climate change and inequality. This is especially true since many communities rightly worry that their real estate property taxes would go up if the state doesn't come up with a way to pay for this deficit spending.
 
We can't get rid of the expenses of driving by hiding them. That's unfortunately what most of the U.S. does. We should be proud that Rhode Island is doing something right, and should work to fix the kinks in that system rather than abandoning it. Let's keep the car tax.
 
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