May 10, 2005

GOOD IDEA, BAD TARGETING (via Tom Corcoran):

Soak the Green: Oregon mulls a new tax that environmentalists and privacy advocates will hate. (BRENDAN MINITER, 5/10/05, Opinion Journal)

As gas prices continue to top $2 a gallon, all those drivers of fuel-efficient cars may not have reason to gloat for much longer. Oregon is worried that too many Honda Insights and Toyota Priuses hitting the roads will rob it of the cash it expects out of its 24-cent-a-gallon tax. So the Beaver State is studying ways to ensure that "hybrid" car owners pay their "fair share" of taxes for the miles they drive. That means allowing the taxman to catch up to hybrid owners just as often as he catches up to gas guzzling SUV drivers. And if Oregon goes ahead, it won't be long before other states follow.

Oregon won't complete its study until 2007. But it's already clear the state is looking to influence behavior in addition to raising revenue by implementing a "vehicle mileage tax." Under a VMT a motorist would pay a tax for each mile driven, probably around 1.25 cents. To administer this tax, a global positioning system would be mounted in each car. As a driver fuels up, the device would relay mileage information to the gas pump, which would calculate the VMT. A simple electronic odometer-reading device would do the trick, but Oregon is looking at GPS devices because they would also allow for charging higher VMT rates for miles driven in "congested" areas during rush hour or to exempt miles driven out of state.

This is bad news not just for enviro-friendly motorists but for anyone who cares about privacy and transparence in government.


It's obviously silly to complain about government overrreach for an activity it licenses, regulates, and taxes as much as driving, but the wiser course for Oregon and the nation would be to tax gasoline use more heavily.

Posted by Orrin Judd at May 10, 2005 4:14 PM
Comments

If this would allow government to keep tabs on all the 'illegals' in the sanctuary city of Portland, it might be a worthwhile tradeoff.

So what do they plan to do about those of us who live across the river in Washington, but use Oregon roads (to go buy sales-tax-free stuff :-)? Require a meter to cross the bridge, or let us free-ride?

Posted by: TimF at May 10, 2005 4:56 PM

Tim: Unless Washington adopts the same standards, looks like we'll be buying all our gas across the river where they don't scan our GPS's, eh? Oregon gas retailers should LOVE that.

Posted by: John Resnick at May 10, 2005 5:32 PM

And all my poor wheat rancher friends will be dealing black-market "farm diesel" too. Terrific idea.

Posted by: John Resnick at May 10, 2005 5:36 PM

This tax is a complete non-starter even in that loony bin that is the Left Coast.

Posted by: bart at May 10, 2005 6:49 PM

perhaps the state gov't could spend less instead.

Posted by: john petko at May 10, 2005 6:51 PM

Actually, this could be a far superior way of paying for roads. Tolls shouldn't be constant per mile regardless of the road and time of day, however.

Posted by: pj at May 10, 2005 8:11 PM

What, no one cares about having a GPS tracker unit in your car? Why not just put make everyone wear ankle bracelets and track them continuously? Don't forget the $2/hour tax for standing still, you know, to prevent slothfullness (goes down to $1/hour between 9pm to 6am).

Posted by: mike beversluis at May 10, 2005 8:27 PM

As noted on Mark Levin's radio show this evening, the government will put GPS in everyone's car, but not on (repeat) sexual predators in California.

Posted by: jim hamlen at May 10, 2005 8:39 PM

All cars will have them and black boxes.

Posted by: oj at May 10, 2005 8:48 PM

All new cars will have them. I'll just drive an old car. So will a lot of other people, with the result that the fleet as a whole will get poorer gas mileage and will pollute more than if you'd simply sat on your hands. That's called the jalopy effect, by the way.

Posted by: joe shropshire at May 10, 2005 9:47 PM

If this were to pass, what you'd see pop up is an undrground network of mechanics who would be paid to disconnect the GPS devices on new cars, the same way there were mechanics 30 years ago who would bypass the catalytic converters in cars so they could keep using the (higher octane) leaded fuels.

Of course, if the law did pass, odds are it wouldn't be long before some politician gets the bright idea to mirror that Connecticut rental car company and start using the GPS devices to track speeders, and then sending a ticket to the car owner's address if the speed of the car exceeds the posted speed for that area of the road. That's when the torches and pitchforks show up at the State Capitol...

Posted by: John at May 10, 2005 11:11 PM

joe:

Talking spiteful feels good, but it's just talk.

Posted by: oj at May 10, 2005 11:41 PM

John:

That's easily enough dealt with. Just revokes licenses.

Posted by: oj at May 10, 2005 11:46 PM

Why is taxing fuel and driving seem to be the only answer anyone provides? Cost efficient transportation is key to freedom and a strong economy.

How about reducing the out of control spending of government instead.

Posted by: fk at May 11, 2005 12:03 AM

No, oj, me doing what I can to preserve what freedom I've left isn't spiteful. You taxing people into immobility, now that's spiteful. And you're projecting, in a way that's familiar to anyone who watches the hard Left. Extremes do meet in the middle.

Posted by: joe shropshire at May 11, 2005 12:50 AM

OJ, this is an idea that does not even begin to be bad. I support the idea of a much higher gas tax, much higher. Gas should cost $6/gal. I support using excises to finance government.

But this idea is just plain creepy. And Joe is right. It won't work.

Posted by: Robert Schwartz at May 11, 2005 12:53 AM

That's also easily enough countered. Just drive without one, as the illegal immigrants do.

Posted by: joe shropshire at May 11, 2005 12:58 AM

joe:

Yes, and then jail.

Posted by: oj at May 11, 2005 7:36 AM

joe:

Your old car won't make you freer. Threatening to drive it is just ranting.

Posted by: oj at May 11, 2005 7:37 AM

oj-

Taxes like this are always put in place under some utopian guise or another. Economis justice or environmentalism or whatever. The perverse effect, like most ham handed attempts at economid regulation, is to protect older, more established individuals, famiies and businesses. The income tax is described as a tax on wealth which couldn't be further from the truth since it is a tax on those trying to accumulate wealth. This tax is a tax on younger, less established folks attempting to start businesses. It's effects will be disaterous for the state and it's business climate since younger, under capitalized individuals and businesses will be handicapped versus their older and more established competitors. It's nice to have the time to be concerned about things like environmentalism and distributive justice and the like. It's certainly more enjoyable than worrying about meeting a payroll or paying your medical insuarnce and sales taxes in order to keep your business' doors open.

Posted by: Tom C., Stamford, Ct. at May 11, 2005 8:09 AM

Tom: I much prefer a congestion tax to a high gas tax. Many business patterns today are simply "the way things have always been done" and don't make a lot of sense given the available technology. A good congestion tax, tied to one of the few remaining externalities caused by driving, could be just what we need to shake things up.

In other words, I live in a very uncongested part of the country and, on the rare occasions I have to go into New York or Boston I'd like to see a lot less of the rest of you.

The privacy concerns, on the other hand, strike me as completely wrong-headed. Of all the nutty political obsessions I don't hold, "privacy" is probably the one I most wish I held, but examples like this show me just how empty it is.

Our cars are registered with the state. We attach numbered tags, provided by the state, so that we can be identified out on the streets. We are licensed to drive and required to keep our license (complete with picture) with us when we drive so that the police can make sure we're us. Our car's serial numbers are registered with the state and engraved on a little plaque that can be seen from outside the car, just to make sure that the car matches the other little tags.

If the state, or anyone else, wants to, they can wait on the state-provided street near my house for me to drive by, and then follow me around noting where I go. Although voluntary to be sure, I have a transponder in my car that tells the turnpike authority when I get on the pike, and when I get off. Though this record, which includes my time on and my time off, can almost always be used to show that I've broken the law, it never is.

It's not "privacy" that's involved if the state is just making it easier for itself to collect information it is otherwise entitled to.

Posted by: David Cohen at May 11, 2005 8:51 AM

David-

What you say is correct. Small businesses will have another bit of overhead added to their costs for reasons that may or may not be justified by economic reality. For the little guy doing business it's just another cost which has to be met or he's out of business.

Posted by: Tom C., Stamford, Ct. at May 11, 2005 9:14 AM

OJ:

People don't go to jail for driving without licenses, not until their 4th or 5th or 6th DUI, and not unless someone is hurt or killed. And if even ten illegals a day in the nation are jailed for driving without a license (or insurance), I would be quite surprised.

Posted by: jim hamlen at May 11, 2005 9:43 AM

jim:

When we start tracking you all we'll be jailing you for non-compliance.

Posted by: oj at May 11, 2005 11:37 AM

Tom:

It makes destructive behavior more expensive, always a good thing.

Posted by: oj at May 11, 2005 11:39 AM

I'll program my chip to show that I have moved to Antarctica. Come and get me.

Posted by: jim hamlen at May 11, 2005 11:47 AM

Anybody want to buy a GPS scrambler?

Posted by: John Resnick at May 11, 2005 3:24 PM

It makes destructive behavior more expensive, always a good thing

Just so, except that you're the one addicted to destructive behavior. Narrowly speaking, you're keen to tax and regulate other people who annoy you simply because they annoy you; more broadly speaking you identify your own appetites and petty grudges with the common good. ( That probably applies to me as well, so feel free to quote it back.) This is a fault you share with the punitive liberals, right down to your fixation on the automobile, and anything that can be done to raise the costs on you of such behavior is quite a good thing. One civilized way to do this is to turn you (by you I mean theocons and social conservatives) out of power for a while, an easier thing to do in a 52-48 country than you suppose. Another is to simply not go along, to drive an old car or spike the GPS receiver and buy gas on the black market, which will appear. A third, much less civilized way is to make common cause with punitive liberalism against you, if for no other reason than to see it eat you first. I'm thinking taxing your church to the point where it can't afford its school; harassing and jailing home schoolers for not having credentials; much higher residential property taxes (I can live in a 500 square foot apartment, as the anti-sprawlers would prefer, but your family might not enjoy it so much); and so forth. There are literally no end of possibilities, since nearly everything we do can be viewed as a negative externality by someone. I'm a what goes around comes around sort of fellow, oj, so behave yourself.

Posted by: joe shropshire at May 11, 2005 7:01 PM

joe:

That's the great thing about being a straight white American male--it never comes around.

Posted by: oj at May 11, 2005 7:52 PM

oj-

A case could be made that your behavior is detructive, or mine. Less space, food, air, energy and 'essential' services are avalable for me because of your consumption. I'd be happy to leave you to your own devices and I'd appreciate if you'd do the same for me. The arrogance of some people is mind-blowing.

Posted by: Tom C., Stamford, Ct. at May 11, 2005 8:15 PM

Yes, but consumption of air isn't destructive while fouling it with engine emmissions is.

Posted by: oj at May 11, 2005 8:26 PM

Why your fixation on the internal combustion engine and the 'bad' habits of others? It's a little strange, some might say anal. You're beyond your competence in this area and you are an otherwise reasonable guy. It's a sign of wisdom rather than weakness to admit what you don't know.

Posted by: Tom C., Stamford, Ct. at May 11, 2005 8:42 PM

Know what?

Posted by: oj at May 11, 2005 8:47 PM

We can fix that.

Posted by: joe shropshire at May 11, 2005 9:27 PM

Tom:

Here's a bit from the Fed:

http://www.stlouisfed.org/publications/re/2004/c/pages/light_rail.html

To permanently alleviate the problems of traffic congestion and pollution, policy-makers must address the root cause of both: the inefficient pricing of roadway usage. Traffic congestion and pollution exist because the costs of driving an automobile are artificially low. Consider the following explanation: A driverís use of the roadway imposes on him certain costs (such as the costs of fuel, time and depreciation of his automobile); the driver himself bears these costs. The driver also imposes costs on others by contributing to pollution and congestion, but the driver does not incur these costs he imposes on other drivers. (Economists term these costs externalities.) Because each driver does not bear the full cost (driverís own cost + externalities), the costs of driving are artificially low; so, each driver overuses the roadway rather than use alternative means of transportation like light rail.

To permanently reduce traffic congestion, policies must be enacted that force each driver to bear the full cost of his or her automobile usage rather than constructing costly public projects that only add to the overall inefficiency of a cityís transportation system. Two methods of forcing drivers to bear the full costs of driving are to operate toll roads and to increase motor fuel taxes, with the toll or tax equal to the external cost each driver imposes on other drivers. Of these, toll roads would be more efficient, although also more difficult to administer.

Posted by: oj at May 11, 2005 11:10 PM

oj-

Government is the most inefficient user of resources by its nature. There's no surprise there, of course. Government is necessary since only it can serve the collective interests in areas where private interests are not appropriate or would be monopolistic and so develop into contained yet viscious tyrannies. The costs of the transportation infrastructure are spread out among all, heavy users and light, although gasoline taxes and tolls are borne by the heaviest users. How those revenues are used by the guardian of the collective intersest is the issue: the inefficiencies are huge since political rather than economic intersts tend to direct the deployment of the resources. Attempts to engineer a more efficient use of the transportation infrastructure through heavy taxation and user fees will impact the less established and younger entries into commerce while protecting the more established, better capitalized. The main issue regarding innefficiencies is how those resources are deployed by the agent for the collective interest or the state. Just as sidewalks, schools and the police are subsidized by light users for the collective good, the roads and highways exist for both established, well capitalized participants in commerce as well as the enterprising young. The state is involved in all kinds of areas where it has no business, maintainig the roads and highways for all through a competent and disinterested use of public resources is not one of them.

Posted by: Tom C., Stamford, Ct. at May 12, 2005 7:18 AM

Yes, so just boost the taxes until drivers are actually paying the real cost to society of their activity.

Posted by: oj at May 12, 2005 7:22 AM

The corner grocery store in the bad part of town should pay a higher city tax as well. They need the cops more than his competitor in the nice neighborhood. Price him out of business if need be. Walikig to the other side of town to get milk for the kids is good exercise for the poor. Make 'em pay!

Posted by: Tom C., Stamford, Ct. at May 12, 2005 7:49 AM

And we always believe everything the Fed says.

The Fed snippet you quote assumes that the fact of congestion shows that the price of driving is too low. This is a non sequiter, although I assume that the idea is that congestion is like queing, which is usually a sign that price is artificially maintained lower than supply would ordinarily allow. This explanation is problematic and the Fed's identification of the two is probably wrong.

First, we observe queing in situations in which a forced subsidy seems unlikely. Take, for example, The Revenge of the Sith (please). People are now queing (literally) for the movie and have been for months. But why would tickets for "Sith" be too low. If anything, because "Sith" is an event with poor substitutes, we would expect the theater owners to have market power and be able to extract economic rents from those eager to see the movie. In fact, we see that owners do take some action to raise their average price by getting rid of some of the tools they use for price discrimination. Theaters showing "Sith" are likely not to have special matinee pricing, not honor "frequent watcher" movie passes or coupons, not allow senior citizen discounts, etc. So if people are willing to queue for months, why can't the theater extract more money for them.

A couple of possibilities occur:

1. A few days/weeks/month's time for rabid Star Wars fans isn't worth much in terms of money.

2. Queuing isn't a cost for the fans, but a benefit (although that still should allow the theaters to benefit by charging rent for the space).

3. Queuing gives the theaters and the film free publicity. But does "Sith" really benefit from more free publicity.

4. The transaction costs for selling reserved seating higher cost tickets is so great as to rob the theaters of any benefit.

5. The blowback in fan reaction would injure the movie's prospects (a specialized form of the argument that the costs are too high).

6. There's some legal restriction, either regulatory or contractual, of which I am unaware. This is almost always the explanation for situations like this, but I really can't imagine what the restriction would be. Nerd discrimination is not yet illegal (my people, the last oppressed minority) and the distributor/film maker/copyright holder would seem to benefit along with the theater owner from higher prices and better upside price discrimination.

In any event, it is clear that congestion does not mean, necessarily, that the cost of driving is too low. So, why is there congestion?

The most likely cause would seem to be that businesses tend to congregate in cities and start and end work at approximately the same time. There are obvious benefits to the businesses from this arrangement. The costs are imposed on their employees, in terms of having to commute when everyone else commutes. But this is not an externality: employers and employees are tied together by contracts in which the employer compensates for the costs imposed upon the employee. In other words, employees take 9 to 5 jobs in the cities because the pay is worth it. Moreover, businesses together aglomerate the costs of commuting to their employees, lessening any externality. In other words, congestion does not necessarily mean that people are driving too much. Driving congestion may just be part of the cost of reducing transaction costs in business by having regional and temperal standardization.

Does that mean that there aren't externalities in driving. It implies it, but doesn't prove it. The Fed, however, has no idea whether there are such externalities. Drivers qua drivers, in fact, pay substantial taxes on gasoline, in tolls, in sales tax and excise taxes. Thus, driving costs subtantially more than the untaxed market price.

Also, while the effect of congestion may be an externality (each additional car added to the rush hour only costs itself a small amount of time, but costs all the other cars on the road, taken together, a large amount of time). Pollution is unlikely to be an externality. First, the congestion effect is reversed. A driver will only breath in a small portion of his own exhaust, but a large amount of everyone else's exhaust. Second, the benefits of motorized transportion are spread so thoroughly through the economy that it seems likely that the average cost of pollution is offset by the corresponding benefit.

Posted by: David Cohen at May 12, 2005 10:15 AM

David-

oj's gotta go back to the lab. More tinkering may be in order.

Posted by: Tom C., Stamford, Ct. at May 12, 2005 10:31 AM

Tom/David:

Well, here's something we could likely agree on. We should completely privatize the highway system, at least, because private enterprise would certainly make drivers bear the costs.

Posted by: oj at May 12, 2005 12:18 PM

And they certainly wouldn't cost as much to build or maintain. The interstate commerce clause might present some difficulties.

Posted by: Tom C., Stamford, Ct. at May 12, 2005 12:41 PM

Works for me.

Posted by: David Cohen at May 12, 2005 3:16 PM
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