Tuesday, May 10, 2005

OpinionJournal - The Western Front


Soak the Green
Oregon mulls a new tax that environmentalists and privacy advocates will hate.

Tuesday, May 10, 2005 12:01 a.m. EDT

As gas prices continue to top $2 a gallon, all those drivers of fuel-efficient cars may not have reason to gloat for much longer. Oregon is worried that too many Honda Insights and Toyota Priuses hitting the roads will rob it of the cash it expects out of its 24-cent-a-gallon tax. So the Beaver State is studying ways to ensure that "hybrid" car owners pay their "fair share" of taxes for the miles they drive. That means allowing the taxman to catch up to hybrid owners just as often as he catches up to gas guzzling SUV drivers. And if Oregon goes ahead, it won't be long before other states follow.

Oregon won't complete its study until 2007. But it's already clear the state is looking to influence behavior in addition to raising revenue by implementing a "vehicle mileage tax." Under a VMT a motorist would pay a tax for each mile driven, probably around 1.25 cents. To administer this tax, a global positioning system would be mounted in each car. As a driver fuels up, the device would relay mileage information to the gas pump, which would calculate the VMT. A simple electronic odometer-reading device would do the trick, but Oregon is looking at GPS devices because they would also allow for charging higher VMT rates for miles driven in "congested" areas during rush hour or to exempt miles driven out of state.

This is bad news not just for enviro-friendly motorists but for anyone who cares about privacy and transparence in government. More than 200 years into our experiment of a government founded on liberty and more than 70 years after FDR's New Deal, it might seem that the issues surrounding individual liberty have already been well hashed out. But the digital age offers a fresh set of challenges for anyone interested in pushing back the encroaching hand of government.
Those challenges involve much more than what we've seen in the controversy over the Patriot Act or the civil libertarians' privacy battles over the past several years. In terms of security, the public has openly debated the issues and has so far willingly traded a small amount of liberty--mostly at the airport--for the express purpose of catching terrorists. Of course, at some point, the government may overstep its bounds, which is why the public must remain vigilant. But on privacy issues unrelated to the war on terror, the government to fear is the one that has a reason to pry into individuals' lives.

What Oregon is showing us is that taxes can provide a government with the rationale to amass and act on all sorts of personal information, including when and where you've driven. After all, it's hard to argue that Oregon doesn't need the money to repair the roads. And it's not just about taxing hybrid car owners or--as Virginia is now planning--charging commuters in certain toll lanes more if they don't carpool to work. Technology is making it easier for governments to have a pricing structure similar to that of airlines--where a passenger paying $300 sits next to and gets the same services as someone paying $1,200. But unlike in the travel industry, there's little competition and it's nearly impossible to decide to get off the plane.

To some degree, this is the tax regime we have now. We can't opt out of it; and mortgage deductions, child tax credits and so forth have left middle-class Americans, who make similar amounts of money, paying vastly different amounts in taxes. Deducting taxes from paychecks began under FDR as a way to help finance fighting World War II. And in Europe technology that has allowed for better recordkeeping has also allowed governments to collect value-added taxes--essentially, steep sales taxes embedded in the price of each item--and other fees that were never possible back in the days when taxes were much more visible.

In the virtual world, the taxes are real but increasingly difficult to spot. Now we have to contend with efforts to charge sales taxes on the Internet and impose a value-added tax or a national sales tax in America. One outfit calling itself Americans for Fair Taxation is pushing to replace the income tax with a sales tax (although the group's leaders won't call it that). Their plan would impose a rate that approaches 30%, but would also offer rebates--checks mailed out every month--so that the tax wouldn't hurt those living in poverty.

Such taxing schemes were once inconceivable for the practical reason that they could not be enforced. Now technology allows for their collection without many taxpayers ever realizing how much they are actually paying the government. Unlike the unpopular stamp taxes England once imposed on a wide array of documents in America (thus helping foment the Revolution), taxes in the digital age need not visible be at all. They can easily be imbedded in the cost of many of the items we buy. They can even be targeted to hit only a select group of individuals.

This is all something to keep in mind as Congress and President Bush turn to tax reform, perhaps as early as this summer. Whichever reform comes down the pike, one item to insist on is making permanent the Internet tax moratorium. A simple and fair tax code is a worthy goal. It's equally important, however, that the notion of "fairness" isn't allowed to morph into a rationale for using technology to target small groups of taxpayers who happen to have a little extra money lying around. The only way to ensure that taxes remain fair and relatively low is to spread the pain to as wide a cross section of the population as possible. Thanks to Oregon, perhaps this is something even the green community can now come to understand.
Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays.
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