A Carbon Tax on Cars Based on their Mileage

There has been much talk about putting some sort of cost on carbon, whether through a tax or something else. Here is a small suggestion that may win support from both liberals and conservatives, albeit for different reasons. First, we have a cost to be paid, then we have to decide what to do with the money in a way that those who are not ideologues or whackadoodles can all accept. 

One of the major purchases people make is a car. It’s a big necessity for most. Yet, cars can be environmentally destructive because of their use of gasoline and their emissions. This plan, which I call the “Reciprocal MPG Tax,” will help. Will it cure everything? Of course not. However, it is a practical way to deal with one of life’s problems.

How it works

When people buy cars now, they see a sticker that says what the EPA-measured MPG is. This proposal takes that same number - which is already determined in a way acceptable to all - and monetizes it. Whenever a car gets sold, the reciprocal MPG tax will kick in, the same as sales taxes kick in currently. The tax is measured by taking $10,000 and dividing it by the gas mileage of the car. Hence, the higher the gas mileage, the lower the tax. For example, if you want to buy a macho-mobile that gets 10 miles to the gallon, you will have to pay a tax of $10,000 divided by 10 or $1,000. If you buy something with a hybrid engine that gets 45 miles to the gallon, you will pay $10,000 divided by 45 or $222.22.

Quite a difference.

How much money would this really give us to play with? It’s hard to tell since the amount of cars sold varies each year, and we would hope this would encourage people to buy ones that are more efficient. BEWARE: MATH AHEAD!

We know that in 2018, approximately 17.2 million cars were sold. The EPA mandates an average fleet MPG of 27.5. So if we assume it all averages out, then the total amount we get would be $10,000 divided by 27.5 times 17.2 million or $6.25 billion. Out of the entire federal budget, that ain’t much but it’s still a sum of money that can be used. Of course, out of my own personal budget, that number is astronomical and represents more than I will ever see in my lifetime if you added every paycheck together.

That leads to the next point - what to do with the money generated. No matter how small the amount, politicians will always argue over what to do with it, so it makes sense to earmark it up front to avoid those fights. I suggest using the money solely to pay off the national debt. It can pay off some old bonds with higher interest rates, which frees up other money to attack the debt. Those of us who have credit cards know: the more you can pay off, the less interest you will have to pay in the future and the easier it is to completely pay off the debt sooner. No sane politician can object and claim that this is a silly use of money. 

What it will do

As I said before, this idea uses economics to encourage people to buy cars with higher gas mileage. If you want to buy a car, you will immediately see the difference in price. If you are rational, you would consider ways to pay less, so you would look to equivalent cars with higher mileage. This also gives salespeople an incentive to push cars that get higher mileage. In order to sell more cars, manufacturers would try to squeeze more mileage out of their products. The magic of the marketplace should soon put more cars with better mileage on the road. That’s called supply and demand. People will want higher mileage cars, so the market will supply them. That’s basic economics. Interestingly, as time goes on, the tax will generate less money as more cars with higher MPG get sold.

Why both liberals and conservatives should like this idea

For my friends on the left, it will accomplish two goals. First, it will begin to place a specific monetary cost on carbon emissions. Since folks on the left have pushed for a carbon tax for many years, they should applaud this. Second, it will encourage people to think about the costs of using a car when they go to buy one.

For my friends on the right, it will also accomplish two goals. First, it will attack a problem of pollution and global warming with minimal regulations or bureaucracy. After all, MPG is already measured and disclosed, and retail sellers are already used to paying taxes at point of sale: y’know, sales taxes, in most states. Second, it is a tax that will disappear all by itself as demand drives more people to buy electric and other cars that use no gasoline.  

Maybe someone will invent the Mr. Fusion engine from the end of Back to the Future. I want one.