Lifted from one of David Zetland’s Aguanomics musings on how our conversations mix things up:
Gasoline taxes are often justified as the response to a “negative externality” of pollution from cars, but the money from those taxes rarely (never?) goes to people who suffer from pollution. So is it really a tax on an externality or is it just a way of raising money?
The tax revenue need not be delivered to those who suffer from the externality in order for the pigouvian tax to serve its purpose, namely to correct the price/cost to reflect true social costs. Am I missing something?
I don’t think that US federal gas taxes were ever intended to reflect polluting costs, they were intended to finance the interstate highway system.
Indeed, if you operate vehicles without operating them on interstate highways, you are entitled to have your fuel taxes paid refunded. Many businesses do this, either for farm equipment or factory equipment of various sorts (loaders).
At any rate, the tax is not nearly high enough to create any rebalancing of priorities reflecting environmental impacts. It’s not even enough to fund federal transportation projects at this point.
The “negative externality” is generally that roads need repairs when cars drive on them. Not that they produce pollution.
We have lots of taxes that tax externalities, but not so vigorously as to lead to zero negative externality-generating activity, thus they raise revenues. Examples besides the gasoline tax are cigarette and alcohol taxes.
As it is, in Virginia the opposite is on the table and may pass, with Governor McDonnell trying to eliminate the gas tax and replace it with a sales tax increase, although he claims there is no tax increase in his plan. As it is, he seems to think that the national GOP will love his “innovative” (this is what even the liberal media is calling this assinine proposal) ending of the gas tax is much more exciting than noticing how it completely undoes both encouraging less pollution and reliance on foreign oil so that low income non-driving residents get to pay for out-of-state high income drivers with gas-hog polluting cars.