The gasoline tax is regressive, but only for upper-income groups
After I argued against McCain’s summer gas-tax freeze, I received an email, the basic thrust of which was, “but everybody knows a gasoline tax is regressive, so how can progressives endorse it?” Well, as we will see, everybody doesn’t know a gasoline tax is regressive. In fact:
- The poor are more likely not to buy any gasoline (i.e., to not own a car at all),
- poor families own fewer cars (and much fewer of the fuel-inefficient SUVs and minivans), and
- the poor tend to walk and use mass transit more.
Maybe the best description [PDF] of the situation is from a Dec. 2003 study for the state of California:
A gas tax would be regressive only across upper-income groups, in this case only in the top half of the income distribution.
Here is the data they present for the “Average Share of Income Spent on Gasoline in California, by Decile.” In the table, “Decile 1 is the poorest income group, and decile 10 is the richest.”
And this is not a new conclusion in the economic literature. As James Poterba, an economist for MIT and the National Bureau of Economic Research found back in 1991:
[L]ow-expenditure households devote a smaller share of their budget to gasoline than do their counterparts in the middle of the expenditure distribution.
Why is this the case? A 1997 study, “Daily Travel by Persons with Low Incomes,” that used data from the U.S. Department of Transportation’s 1995 Nationwide Personal Transportation Survey, says this:
- A quarter (26 percent) of low income households do not have a car compared to only 4 percent of other households. [I’d be interested in seeing more recent statistics.]
- People from low-income households are more likely to walk to work and are more likely to use public transit … to get to work.
- People in low-income households are nearly twice as likely to walk for other than work activities as well … For low-income single parent households, about 66 percent of trips are three miles or less.
A 2002 New Jersey Policy Perspective Report pointed out that that people were increasingly buying SUVs, pickup trucks and minivan, and “Most, if not all … are purchased by mid- to high-income households.” The EPA has found that such vehicles “burn 66 percent more fuel annually than passenger cars.” (You could also throw sports cars into the list of expensive, fuel-inefficient vehicles typically bought by wealthier households.) The 2002 report cited but one example:
AutoPacific, a forecasting firm based in California, estimated that the median household income of the typical purchaser of a Lexus LX 470 is $250,000. The fuel usage of the LX 470, one of the heavier luxury sport utility vehicles, is less than 13 miles per gallon.
So the gasoline tax is regressive only across the top half of the income distribution. I stand by my critique:
OK — let’s provide more tax relief to the American people, as progressives have been pushing hard to do. So why not cut income or payroll taxes or give the public a larger direct rebate — one that is linked to income so that the rich don’t get yet more money that should be going to middle class and poor. Cutting the gas tax will send a lot of money to the rich, and not bloody much money to the people who can’t afford a car, especially the urban poor. Who is out of touch?