The Gas Tax Isn’t Regressive, Part Three

(at least, not regressive across the spectrum) – as I’ve argued here and here, the gas tax doesn’t hit the poor that hard; it mostly hits the exurban parts of the middle class and leaves the rich alone. From my original article on the subject:

The supposed regressive nature of the gas tax is a fallacy – in fact, poor people spend far less proportionally on gasoline than do the upper-middle-class.
The gas tax isn’t purely progressive; though; the very rich actually spend less proportionally than do the upper-middle-class, due to their tendency to be either in the few healthy downtowns, or less need to drive overall.

Here’s another link I found today which asserts the same:

“A subsidy to new vehicles would be regressive. A tax on
gasoline is not regressive across the lowest incomes but is regressive from middle to high

Note that the internet is replete with sites which say that the gas tax is regressive, but the only articles or studies which actually include any supporting arguments are the few that claim that it isn’t regressive. This leads me to believe that the gas tax ISN’T regressive, for the reasons previously discussed, and that the ‘conventional wisdom’ is wrong here.

This is timely because of a current thread on Environmental Economics on this very subject. Amazingly, I’ve now provided THREE links which are credible and contain supporting evidence for the claim that the gas tax isn’t regressive across-the-board; for the most part blind assertion is still the only support for the ‘regressive’ position. Moral: Conventional Wisdom is hard to fight, even when it’s wrong.

10 Replies to “The Gas Tax Isn’t Regressive, Part Three”

  1. Completely agree with your argument.
    I don’t think it’s that hard to see that most really poor people don’t drive at all (single unemployed mums and pensioners here in the UK in particular) or drive very little in small cars.
    It’s upper middle class people who live 50 miles away from work to be able to afford an enormous house with a big garden in an ultra low crime neighbourhood (I see something like this here in the UK with some of my colleagues, who I’d say are upper middle class, two incomes, two cars and they live in the countryside outside of Birmingham giving them long commutes).
    Very rich people often choose a luxury gated estate much closer to their place of work, not least, because time is money and they don’t want to commute for an hour and can afford to plunk down a million pounds.

  2. Well, here in the UK (just visiting) gas is about to hit $6.00 per (US) gallon and I don’t see much complaining (though it is a news item since we are reaching 1 pound per litre which is one of those artificial “newsworthy” thresholds), nor do I see much effort to economise as yet. Even at double the gas prices to the States, buying “petrol” is deemed a necessary evil.
    Of course, it’s hard to compare the UK with the US – distances (hence commutes) are shorter and the public transport system is much more comprehensive in the UK. At least people who can’t afford cars tend to be closer to their place of employment and/or can use buses or trains (not that they are that cheap these days).
    Americans might grumble about the price of gas, but I suspect we are nowhere near the pain threshold regarding the price of gas in the States, but only shortages will send the price up – the chances of more taxes on gas from a Republican government are nil, at best.

  3. Here is a study that shows the gas tax is regressive: Estimates from a Consumer Demand System: Implications for the Incidence of Environmental Taxes, by West and Williams, Journal of Environmental Economics and Management, May 2004.
    It finds a result similar to this:
    “A tax on gasoline is not regressive across the lowest incomes but is regressive from middle to high incomes.”
    Those in the lowest incomes are not in the gas market because they don’t have cars. Therefore, gas taxes are regressive for those in the market. That’s one definition of regressivity.
    A problem is that car ownership is one of those variables that helps low-income people increase their incomes. For example, if you don’t have a car it is tougher to get to work at various places, tougher to find better employment, tougher to work and take your kids to daycare, etc.
    So, excluding them from the definition of regressivity seems like circular logic.

  4. Note that the typical way regressivity is measured is not across the market, but across all incomes. Thus, your argument that poor people who don’t drive shouldn’t count in the measure of the tax’s regressivity is foolish. And, frankly, it doesn’t surprise me that somebody who lives in such a car-dependent area views being without a car as an unmitigated negative – for you, it clearly would be. It would be nearly impossible to be economically productive in Boone without a car.
    The same thing is definitely NOT true in major cities all over this country, though. In fact, freeing poor people from the necessity of owning a car in order to acquire employment is a huge POSITIVE in those cities, as seen by the various studies that show that in the most car-dependent cities, people actually spend as much or more on transportation as they do on housing.
    Again, without redefining “regressive” in a way which seems inappropriate, you can’t get away from the fact that even in this country, many poor people don’t drive (don’t HAVE to) and many more drive a lot less than your typical exurbanite SUV owner. That’s why the gas tax is not regressive across the spectrum.

  5. John Whitehead mentioned my paper with Sarah West, but didn’t mention one of the main points of the paper: the results depend a lot on how you use the gas tax revenue. By itself, the gas tax is (mildly) regressive. But as we show in the paper, you can easily use the revenue in ways that would make the gas tax highly progressive (by using that revenue to finance cuts in really regressive taxes, for example).
    Right now, gas tax revenues aren’t used that way. But there’s no reason that has to be true. The additional revenue from a gas tax increase doesn’t have to be used in exactly the same way that we currently use gas tax revenue.

  6. i may be nieve on this, i am not sure how the gas tax is structured but it seems to me anything that raises the cost of goods and services is by its nature regresive…Isn’t inflation by its very nature regresive?
    If a loaf of bread costs 3$ without taxes and i make $20,000 year and soem other guy makes $50,000 and then that price goes up becouse becouse gas prices rise to say $4 a loaf arn’t i as being poorer pay a higher % of my income then the richer person? Isn’t that the definition of regresive?

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