Wednesday, January 7, 2009

Mileage Tax Redux: Mankiw and Thompson

It turns out that Greg Mankiw has blogged about Oregon's mileage tax proposal and, lo and behold, frequent guest blogger and friend of the blog, Fred Thompson has chimed in with some clarification. The essence of which is that congestion pricing is indeed a major motivator of the whole GPS idea and (as Fred rightly notes) without such motivation, the GPS doesn't make much sense.

But I still wonder how you deal with the problem of non-residents. Since the bulk of the congestion problems in Oregon are in Portland, particularly the I-5 and I-205 crossings of the Columbia river, it is not clear how something tied to Oregon registered vehicles will work. A lot of the congestion in these areas is apparently coming from Washington residents that work in Oregon, which means that the GPS in Oregon cars won't be effective in dissuading these drivers.

London has famously instituted congestion pricing, but there the tax works based on photographs of license plates. So if you enter London you pay, regardless of where your vehicle is registered.

Given the cost, complexity and incompleteness of this system, I still cannot see why it trumps the simple and effective gas tax. It strikes me as a wonderful idea of you are an engineer (especially a traffic engineer) because you get to play with new toys and tools, but I remain unconvinced in my mental cost-benefit analysis of the idea.


Fred Thompson said...

There's a saying that the worst tax is a new tax. But this isn't a wholly new tax. It extends the existing system in effect for commercial vehicles to all others. The tax is a charge for highway use. The base rate proposed is based on vehicle weight and miles travelled, which, together with vehicle speed, determines highway wear and tear.

GPS data will make it easier to figure out how much maintenance roads need and, as you note, to allocate money for municipal and county roads.

IMHO this is a good proposal. The analysts in the OR Departments of Transportation and Administration have thought this through very carefully and moved forward only after testing it in well-thought out experiments. They have also had expert advice from people like our colleague, Portland State Professor, Tony Rufolo.

As for omissions, commuters will be incorporated into the system and tourists already get taxed pretty hard. The easiest kind of taxation is taxation without representation.

MPPBrian said...

What about the effects on the incidence of the tax? The gas tax is paid by the oil companies, but presumably it is split between producers and consumers based on the elasticity of demand. Will a mileage tax fall entirely on consumers? If so, is this really what we want, to shift the tax burden more to the consumer?

Fred Thompson said...

MPPBrian, Patrick dealt with the incidence issue in his earlier post on the stupidity of McCain's gas-tax holiday proposal. Under normal conditions most of the tax is shifted forward to consumers. Moving to a weight-miles tax might have some effect on incidence, but, as the Brits say, on the second order of smalls.