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The Car Tax Backfires
Monday, October 27, 2003
The car tax hike backfires
The tripling of the car tax is decreasing luxury sales, possibly costing the state treasury more than it brings in.
Tax increases bring unforeseen consequences. That's becoming clear with Gov. Gray Davis' tripling of the car tax, which took effect Oct. 1 and which Gov.-elect Arnold Schwarzenegger says he will revoke upon taking office next month.
"Statewide sales of new luxury motor vehicles plunged 40 percent from Sept. 1 to Oct. 19 - a period that included a tripling of California's vehicle license fee - according to an affiliate of J.D. Power and Associates," reported the Sacramento Bee on Friday. (U.S. car sales also declined in that period, but by 25 percent for luxury cars.)
That means California car dealers lost a sale on a big-ticket item. It means the state and local governments lost the full car tax, 2 percent of the car's value, plus the sales tax of about 8 percent (depending on locality; in Orange County, it's 7.75 percent).
For example, a $50,000 luxury car now gets hit with $1,000 for the car tax, up from $333 before the increase.
But if the buyer skips the purchase and sticks with his old car, he doesn't pay either amount; nor does he pay the O.C. sales tax of $3,875. State and local governments get none of that money.
It seems obvious that people are avoiding the car tax, or waiting until it's repealed and they don't have to worry about whether not they'll get a refund of a tax paid before the repeal.
It would take an extended analysis in the future to find out, but it looks as though the car tax could cost the state as much as it brings in - thus actually making the budget deficit worse. Do we need any better reason for repeal? |
