For the past year or so, I’ve been involved in a debate with well-respected transit policy expert James Kennedy, who curates the Transport Providence blog. The question is whether the car tax is regressive or progressive. I say it’s very regressive, and Kennedy says it isn’t.
Kennedy’s core argument is that many poor people don’t have cars, so the car tax is progressive because it doesn’t affect the very poor. He’s not wrong about this effect. It is real. The question is whether it swamps a much bigger effect: the value of a car is a much bigger percentage of a poor person’s income than a rich person’s. I say that the second effect is much, much larger because the vast majority of people own cars. There just aren’t very many people without cars. (Sadly, both Kennedy and I recently joined the ranks of the car owners.) But without hard numbers, it’s hard to quantify which effect wins out.
Recently, Doug Hall of the Economic Progress Institute attempted to put some meat on the bones in a technical piece in RI Future estimating the average tax someone in each income bracket pays. (In order to run his calculations through ITEP’s microsimulation model, Hall assumes a uniform rate and exemption. This assumption probably underestimates the regressivity of the car tax because poorer cities and towns have much higher car taxes.)
Unsurprisingly, Hall finds that the wealthy pay a higher dollar amount because they own more expensive cars. I’ve copied Hall’s chart here:
To really assess how progressive a tax is, though, you have to express it as a percentage of income. Using Hall’s estimates of average income in Rhode Island, I’ve run the numbers and plotted them up.
The results are very clear. The car tax is an extremely regressive tax. Eliminating it would have a very progressive effect on Rhode Island’s tax policy.
Now, I believe that part of Kennedy’s concern with the car tax is that it discourages using cars, which is a valid public policy goal. Cars maim and kill tens of thousands of Americans every year, on top of spewing pollution, encouraging obesity, and making our cities less nice places to live. There are many valid public policy reasons to discourage car ownership. Personally, I do think that the equity concerns are more important, but the climate crisis is very real.
There certainly are cases where regressive taxes make sense even though they’re regressive. For instance, cigarette taxes are very regressive, but I still think they are a good idea. And we also have to consider how the tax cut will be paid for. If it’s paid for by cutting services that are even more progressive than the tax is regressive, it’s probably not a good trade. In fact, if the pay-for is equally regressive, I’d say we’re better off keeping the car tax. That’s why we should pay for eliminating the car tax by repealing the tax cuts for the rich.
UPDATE: After I wrote this, I saw that Kennedy put up a post up on this debate on the Transport Providence blog. I recommend that you check it out. The core of his argument seems to be that, while I’m largely right about regressivity, I’m not fully acknowledging the harm from the pay-for and the positive pigouvian effects, which together push the car tax into being a good policy. I like that argument a lot better than the argument that the car tax isn’t regressive. In some ways, it’s like the classic argument that it’s okay that European taxes are so much more regressive because those regressive taxes are higher than America’s taxes, so they can pay for more services, which tips European policy into being more progressive on the whole. Personally, I feel like the car tax is just so insanely regressive that that regressivity swamps other concerns, but I can see why reasonable people might disagree. (And I’d argue that the new spending programs the General Assembly has been setting up recently have largely been dumb things like administrative healthcare payments and straight-up corporate welfare.)
Kennedy also makes another valid point that I did not address. He says that it’s not fair to accept the current preponderance of car ownership as a given, and that the regressivity of the car tax is a function of a policy mix that should be changed. That’s fair as far as it goes, but we do have to live in the real world. Unfortunately, Rhode Island’s transit policies continue to be magnificently awful. While basic bike networks are increasingly becoming standard in American cities, Providence fails to even have a connected network of painted bike lanes (forget about protected lanes and off-road paths). While cities around the country are removing urban highways, under Gina Raimondo and Republican RIDOT Director Peter Alviti, we’re doubling down on rebuilding our worst urban highway. While other blue states are looking at improving rail infrastructure, our idea of rail infrastructure is to build a ginormous free parking garage a 53 minute walk west of Wickford Village connected to an infill station no one uses. That’s before we get into what the ruling machine conservatives are doing to RIPTA or the continued war on pedestrian spaces. Kennedy is very familiar with all of this, and he knows that our transit policies aren’t about to get fixed any time soon. To do that, we’ll need to oust the machine from power. Fortunately, Rhode Island voters are increasingly fed up, the real Democratic movement is stronger than ever, and we still do have elections in this state.