The gas guzzler tax was enacted in 1978, in the midst of a fuel crisis that the country faced; the purpose of the law was to encourage car manufacturers to make more gas efficient cars, by levying financial penalties on the manufacturers. While the financial penalties worked in the 1970’s, they have proven to be ineffective today, because car manufacturers have found loopholes that they can exploit.
Even though there are stricter fuel economy standards that demand major improvements in efficiency, there are fewer cars incurring the financial penalties, mostly due to technological advances.
Technological advances have allowed car manufacturers to make cars that are still powerful, but aren’t considered gas guzzlers by the standards set by the Environmental Protection Agency. Some of the new technologies employed by automakers include hybrid powertrains, lightweight structures, advanced transmissions, and smaller turbo charged engines.
Numbers from the Internal Revenue Services also show the decrease in the number of cars incurring the financial penalties, in 2006; the IRS collected $201.7 million from the gas guzzler tax, but only collected $73.5 million from the tax in 2012.
The reduction in the amount of cars that are paying the gas guzzler tax is due to the fact that automakers are making improvements to the cars that they are manufacturing, the newer cars being made have better fuel economy, without having to sacrifice the power that they have. The problem is that the gas guzzler tax has not been updated since 1990, so it isn’t as effective with the new cars being made today, so it isn’t as effective in promoting efficiency as it was in the past, and isn’t generating the type of revenue it used to.
The gas guzzler tax is generally levied on passenger cars that have a fuel economy rating of less than 22.5 miles per gallon, which is measured by the testing procedure of the National Highway Traffic Safety Administration, but the rules are complicated because the mileage number that is displayed on a car is derived by a different method, which gives numbers that are 20-25 percent lower, which means a car that has a fuel economy of 21 miles per gallon may not incur the tax.
The tax starts at $1,000, and goes up to $7,700 for cars that get less than 12.5 miles per gallon, but there isn’t any car that is taxed at the highest rate. The money is paid to the IRS by the automakers, who in turn pass it on to their buyers by adding it to the price of the car.
The car that pays the highest tax rate in the country is the Bugatti Veyron Grand Sport Vitesse, which has 16 cylinders, and gets 10 miles per gallon. The unadjusted rating for the car is 12.6 miles per gallon, so the automakers don’t have to pay the $7,700 tax, but still have to pay $6,400, which isn’t much compared to the $2.3 million price tag.
Further proof of why the gas guzzler tax needs to be updated is the fact that pickup trucks and SUVs aren’t subject to the tax, because when it was passed in 1978, trucks were used mainly for commercial purposes. Since the law was restricted to cars, people started buying trucks and SUVs, to avoid paying the tax.
There are no immediate plans to review the gas guzzler tax, but legislators need to take another look at it because it needs to be updated, and it can help generate more revenue.