From Mike Moffat at economics.about.com:
Oregon's Mileage Tax: A Truly Bad Idea
I try not to editorialize when I comment on public policy proposals. I try to give my readers the pros and cons of any potential new law and leave it up to the reader to form their own opinion with the new information they have. But some policy proposals are so outrageously ill-conceived they defy all description. Oregon's "mileage tax" is one such proposal.
This is the meat of the comparison (from Moffat):
Taxes are distortionary in the sense that they alter behavior. High income taxes are known to cause employees to work less and high capital gains taxes are a deterrent to investing in the stock market. These distortions are not always negative; often governments will introduce new taxes because of the distortions they cause. High taxes on cigarettes are often promoted as a way to discourage youth from picking up the habit.
The distortions caused by gasoline taxes are threefold.
- High gasoline taxes reduce the amount people drive
- High gasoline taxes increase the marginal cost of goods shipped by truck
- High gasoline taxes cause people to buy more fuel efficient cars
The first effect is ambiguous. If I'm stuck in rush hour traffic, I'd like to see less cars around me, but at the same time, high gasoline taxes may discourage me from taking trips I'd otherwise embark on. The second effect is most certainly negative. As a Canadian who loves orange juice, I certainly don't want to see a rise in the shipping cost of Florida oranges. As for the third effect, a good argument can be made that this is a positive distortion. Fuel efficient cars give off less pollution than non-fuel efficient cars. Since the air is a public good, we will see far more air pollution than is socially optimal unless governments find a way for individuals to pay for the costs of their pollution. The gas tax is one way of doing so.
When we consider these distortions, we see that the mileage tax is a poor substitute for the gas tax. It has all the negative features of the gas tax, such as decreasing the number of trips taken and increasing the marginal costs of products shipped via truck. It, however, does not have the positive impact of causing consumers to buy less polluting cars. Any proposal that has less benefits but just as many drawbacks as existing methods can hardly be seen as a positive change.
I agree with all of this but my read is that the first effect (high taxes make people drive less) is ambiguous only if one focuses on congestion. Reduced driving yields the same gains as more fuel efficient cars. Plus, with more expensive gas, people will choose to not take their lowest valued trips (obviously, I'd argue against taking all those trips to the in-laws), reduce joy riding (I'd stop cruising college street for girls), make errands more efficient (I'd combine my smoke and beer runs) and etc.
Here is what I said on the same subject on my little sister's birthday (1/20): gas tax vs mileage tax.
