| "body"> | | | | from Virginia voters. Meanwhile, in Texas, |
| The car tax is the last vestige of an abusive and | | | | Democrat Gary Mauro is campaigning against |
| long ago discarded tax system. It's the old | | | | Republican Gov. George Bush, Jr., on a platform to |
| personal property tax - when the tax assessor | | | | abolish the state's sales tax on motor vehicles. |
| pawed through your belongings and told you how | | | | Bush opposes the plan. In Georgia, Republican Guy |
| much you had to pay to keep them. The USA | | | | Millner has proposed ending that state's car tax |
| and European Commission are currently calling for | | | | for a saving to taxpayers of $475 million. In |
| significant changes in the way passenger cars are | | | | South Carolina, Gov. David Beasley proposed in his |
| taxed. The intention is to gradually apply the user | | | | State of the State address last month to phase |
| pays principle to motorized transport. According to | | | | out the car tax over a period of six years. |
| DG TAXUD, the envisioned taxation system will | | | | Abolishing the Car Tax: AB 1776 |
| ensure a more appropriate internalization of the | | | | A car represents security of transport. Even if |
| external costs of private cars - an important | | | | public transport is adequate for most journeys, |
| principle for which T&E has long been arguing. | | | | people still want a car for the odd occasion or |
| Taxing the actual use of private cars is an | | | | emergency. There will always be places and times |
| important step towards sustainable transport. But | | | | when public transport doesn't run. The |
| charges on car user ship ought to complement | | | | Government could make a contribution |
| the already existing taxation of car ownership, | | | | immediately by abolishing car tax and increasing |
| and not just replace it. A full internalization of all | | | | fuel taxes to offset the loss of revenue. This |
| environmental costs of cars must recognize the | | | | would have the added benefit of doing away with |
| problems that result from the still growing sum | | | | an absolutely pointless and tedious administration |
| total of cars on national and international roads. | | | | system. The point is that public transport will |
| Road capacity in many regions has reached its | | | | never be able to emulate the flexibility of private |
| limits - a fact that is most illustratively expressed | | | | transport and that at present the car has so |
| by the continuous congestions on national | | | | many advantages. |
| highways and trunk roads. Capacity limits are | | | | The Virginia experience makes a strong case for |
| reached as well in almost all urban areas, where | | | | California to abolish its car tax. By doing so, |
| evermore space is consumed by | | | | California could reduce the overall level of taxation |
| car-infrastructure such as parking spaces, | | | | to what it would have been without the tax |
| car-dealers or car repair-, maintenance- and | | | | increases imposed during the 1990's, while still |
| washing-facilities - not to mention streets | | | | providing for some $14 billion in additional general |
| themselves. Therefore a taxation system is | | | | fund revenues in the last eight years. It would |
| needed that restricts both private user- and | | | | abolish a tax that long ago ceased to bear any |
| ownership by making sure that road passenger | | | | resemblance to its original purpose and intention. It |
| transport pays for its external costs. The positive | | | | would remove a strong disincentive in current law |
| response with which carmakers have welcomed | | | | that keeps motorists from shedding older, higher |
| (and had lobbied for) the abolition of registration | | | | polluting automobiles. It would provide a significant |
| taxes illustrates how auto-friendly the proposed | | | | spur to economic activity by reducing the cost of |
| legislation eventually may be. This, however, | | | | new vehicles in California. It would reduce costs to |
| means that transport in general will not become | | | | California families of what is a practical necessity |
| more expensive - but that the sector will just pay | | | | in the Golden State: the family car. The problem in |
| differently and still not properly. | | | | doing so is the built-in special interests that depend |
| Thus to create harmonization it will make the | | | | on the tax. A $4 billion saving to taxpayers is also |
| economy more efficient, but does not | | | | a $4 billion cut in the governor's proposed budget. |
| automatically entail environmental improvement. | | | | In this case, the beneficiaries are local |
| As they stand now, the plans of the Commission | | | | government budgets, which are still recovering |
| to replace Registration Taxes by Annual | | | | from a multi-billion dollar raid by the state |
| Circulation Taxes may partially reduce private car | | | | government in 1992 and 1993. In order to back-fill |
| use and thus lower the annual emissions of a | | | | this amount, reductions in the proposed state |
| single car. However, they will not provide any | | | | budget would have to be taken from |
| incentive at all to refrain from owning a car. In | | | | non-education funds under constitutional provisions |
| fact, the opposite is the case, because abandoning | | | | enacted by Proposition 98. The "non-98" side of |
| registration taxes will further stimulate the | | | | the budget also funds the Department of |
| production and consumption of cars. This will be | | | | Corrections, a sacred legislative cow. |
| most tangible in countries like Denmark that were | | | | In abolishing California's car tax, it would be a |
| able to limit the growth of motorization rates and | | | | desirable policy and a practical necessity: |
| maintain a "greener" modal split by ways of higher | | | | To hold local governments harmless by |
| registration rates. | | | | back-filling their losses with state funds |
| It is to be noted that The Government has | | | | To work within the revenue |
| announced that with effect from 6 April 2002, | | | | projections of the Department of Finance |
| the basis of taxation on cars provided by | | | | Not to affect Proposition 98 funds for |
| employers for employees' business and private | | | | schools |
| use, will be changed to an emissions based | | | | Not to affect the administration's |
| system. Pool cars, provided for business use only, | | | | proposed funding for state prisons |
| and which are returned to site at the end of the | | | | Not to affect the administration's |
| working day are currently not liable to benefit in | | | | proposed budget reserve. |
| kind taxation, and this will continue to be so. | | | | The next question is how the funds should be |
| Carbon Dioxide (CO2) emissions will be used as | | | | preserved, protected and restored to local |
| the measure to calculate benefit in kind taxation | | | | governments to replace the VLF taxes they will |
| on company cars from that date. A tax | | | | be losing. This is a particularly important question, |
| discourages economic activity, such as work or | | | | since Proposition 47 of 1986 constitutionally |
| investment. The tax is cut, leading to increased | | | | earmarked VLF subventions for local |
| economic activity. Liberals then assume that | | | | governments, providing a relatively tamper-proof |
| previous rates of tax would still be collected at | | | | and expanding source of local revenues. Even |
| the higher rate of activity -- which, of course, | | | | though VLF subventions could be redirected away |
| only came about because of the lower tax rate -- | | | | from local governments in future budgets simply |
| thus depriving the government of vast revenues | | | | by using them to supplant other sources of local |
| it is justly entitled to. It makes no difference to | | | | funding, a suitable replacement to the VLF is an |
| them that economic activity often expands by | | | | understandably important objective of local |
| more than tax rates are cut, thus increasing total | | | | government. |
| revenues. Liberals always still believe that even | | | | AB 1776 establishes a strong protection against |
| more would have been collected if only tax rates | | | | state government raids by phasing in a dedicated |
| had not been cut. In the case of the car tax, | | | | portion of future sales tax revenues to replace |
| liberals assume that additional cars would have | | | | the lost VLF subventions. To protect against |
| been purchased anyway, without any change in | | | | anomalies occurring between high-sales tax and |
| the tax. And by multiplying the old car tax rate | | | | low sales tax communities, the replacement |
| times the larger number of cars registered, they | | | | revenues are placed into a dedicated state sales |
| come up with mythical revenues that could pay | | | | and use tax account that will replace lost VLF |
| for more teachers, police, and roads. | | | | subventions on a dollar-for-dollar basis. When fully |
| Thus, in this paper, we discuss the abolition of car | | | | phased in, the sales tax rate required to replace |
| taxes rule in context of California - one of the | | | | the lost revenues will lock, and the subventions |
| major and highly populated city of United States | | | | from the fund will naturally expand as the |
| of America. | | | | economy expands. Indeed, this reform greatly |
| History: In 1935, the Motor Vehicle License Fee | | | | enhances the flexibility of local governments to |
| Act established a state car tax of 1.75 percent of | | | | use these funds by eliminating the straightjacket |
| the value of an automobile in lieu of the personal | | | | effect of the 1991 re-alignment legislation. |
| property tax then assessed on all personal | | | | Furthermore, to provide additional protection for |
| property. The taxes collected under this act were | | | | local governments, the sales tax provisions of AB |
| limited to state purposes, including highways. The | | | | 1776 will be placed in a "Local Government |
| personal property tax was subsequently abolished, | | | | Independence Act," a constitutional amendment to |
| but the car tax remained. In 1948, the fee was | | | | be introduced in the Assembly later this month. |
| raised to two percent. In 1957, the law was | | | | Californians pay the third highest combination of |
| clarified to limit the use of these funds for law | | | | automobile taxes in the nation, and they pay $3.6 |
| enforcement, regulation and control of highway | | | | billion more in overall taxes than they would have |
| traffic, and other state purposes. | | | | without the net tax increases of the 1990's. The |
| In 1988, the law was amended to allow the use | | | | largest portion of the automobile taxes is the |
| of car taxes for any purpose, and in 1993, 25 | | | | Vehicle License Fee, also called the "car tax," |
| percent of the funds were earmarked for | | | | accounting for an average of $185 per automobile |
| realignment of health and social services | | | | annually. None of this money is used for highways |
| programs. Thus, any linkage between the car tax | | | | or highway-related services. It goes instead to |
| and roads was obliterated. Worse for taxpayers, | | | | local government general funds and local health |
| in 1991 California's car tax was radically | | | | and social services programs. Abolishing California's |
| restructured to provide additional tax resources | | | | car tax would make California families whole for |
| to balance the state budget as part of an $8.2 | | | | the massive tax increases they suffered in 1991. |
| billion increase in taxes and fees that year. Prior to | | | | In this period of economic growth, abolition of the |
| 1991, automobile owners were charged on a | | | | car tax could be done while protecting local |
| ten-year depreciation schedule, based on the | | | | government from any revenue loss, preserving |
| original purchase price of the automobile. The 1991 | | | | state funding for schools and prisons, and |
| legislation made three dramatic changes. First, the | | | | maintaining the proposed budget reserve. It would |
| depreciation schedule was stretched from ten to | | | | require an overall reduction in the 1998-99 |
| eleven years. Second, the act provided for a | | | | proposed general fund budget of just 9/10ths of |
| permanent tax on fully depreciated automobiles | | | | one percent, or no budget reductions at all if |
| amounting to 0.3 percent of the price in | | | | additional revenues materialize in the May Revise. |
| perpetuity beginning in the 11th year. Third, the | | | | The state's booming economy makes it possible |
| new law triggered a restarting of the depreciation | | | | to abolish the tax without touching the state's |
| schedule, virtually assuring that very few cars | | | | school budgets or even the growth rate in the |
| would ever reach the bottom of the schedule. | | | | schools' funding guarantee. The bill to abolish the |
| The net effect was a $60 per year increase in | | | | tax even protects local governments from any |
| the VLF paid for an average car. | | | | revenue loss; it replaces every dollar lost through |
| Another historical note about the 1991 tax | | | | the car tax with an equal amount from the |
| increase is also relevant to this discussion. The | | | | state's share of existing sales tax revenues. To |
| overall tax increase that year was the largest by | | | | answer local government concerns that the |
| any state in the history of the nation. According | | | | replacement fund might be reduced in future |
| to revenue estimates made at the time, the | | | | years, a constitutional amendment has been |
| entire package amounted to $8.2 billion in additional | | | | proposed to protect against raids by future |
| taxes and fees, or roughly $1,100 per family. The | | | | legislatures. In response, on 1997 Virginia voters |
| tax increase, enacted in the midst of a recession, | | | | just delivered a resounding mandate for abolishing |
| broke the back of California's economy. Although | | | | the car tax in that state by electing James |
| some of those taxes were repealed or expired, | | | | Gilmore, who made that objective the signature |
| many are still on the books. Thus, California's | | | | theme of his campaign. The support for abolishing |
| Vehicle License Fee began as a substitute for the | | | | the car tax from an impressive coalition of |
| personal property tax. When the personal | | | | taxpayer groups suggests that strong |
| property tax was abolished, the tax was | | | | organizational structure exists for taxpayers to |
| maintained under a new name. It was originally | | | | channel their outrage at California's abusive car |
| limited to state purposes, principally for highways | | | | tax. |
| and highway-related services. Today, it is devoted | | | | Putting the real cost of using a car before the |
| to purposes entirely unrelated to highways. It now | | | | commuter might change a lot of minds and, |
| consumes $3.3 billion of California family earnings, | | | | incidentally, is a lot more democratic than road |
| at a time when they are paying $3.6 billion more | | | | pricing where a flat rate will have to be paid to |
| than they would have paid without the 1991 tax | | | | get into the city center. The good news is that |
| increases. | | | | California is enjoying a period of economic |
| Meanwhile, the onerous and outdated automobile | | | | expansion. A combination of projected revenue |
| tax has proven to be highly unpopular across the | | | | growth and a one-year postponement of new |
| country. In the 1997 Virginia gubernatorial | | | | social spending while meeting all of the above |
| campaign, Republican James Gilmore's campaign | | | | criteria can accommodate a five-year phase-out |
| was stalled until he unveiled a proposal to abolish | | | | on the car-taxation. It is now established that |
| Virginia's car tax. Gilmore won a dramatic victory | | | | even a much reduced rate of economic growth |
| for Governor and swept a majority of | | | | than California is currently experiencing would be |
| Republicans into the Virginia state Senate. He has | | | | more than enough to cover the phase-out of the |
| now set about to fulfill his signature campaign | | | | car tax, without affecting Proposition 98 funding |
| promise, backed by an overwhelming mandate | | | | guarantees. |