Gas Guzzler Tax

Gas Guzzler Tax

The National Energy Act: Energy Tax Act of 1978 imposed set tax penalties on car manufacturers who fail to meet the minimum fuel economy level of 22.5 mpg. This does not include minivans, sport utility vehicles or pick-up trucks. It is intended to discourage the production and purchase of fuel inefficient vehicles. In determining the tax, the fuel economy figures used are different from the fuel economy values provided in the Fuel Economy Guide. This tax is collected by the IRS and paid by the manufacturer or importer after production has ended for the model year. It is based on the total number of gas guzzler vehicles which were introduced into commerce in the United States. The amount of the tax paid by manufacturer is displayed on the vehicle's fuel economy label on the window sticker of new cars.

Gas guzzler tax calculation

The adjusted fuel economy of a vehicle,mathit{F_i}, is calculated by combining the measured fuel economy of the car when driving in the city, mathit{F_c}, and the measured fuel economy of the car when driving on a highway, mathit{F_h}.

F_i=left ( frac{1}{frac{.495}{F_c}+frac{.351}{F_h ight )+.15

Taking the adjusted fuel economy, we can then find out how much penalty, mathit{p_t}, the manufacturer has to pay for that particular vehicle by using the following equation. mathit{p_i} needs to be looked up on the table above and mathit{q_i} is the numbers of cars that are found to be under the set Gas Guzzler standard,

p_{t}=sum_{i}{p_iq_i},

Economic Impact

Gas guzzler tax creates incentive to meet the minimum MPG requirement by manufacturer. Due to elimination of vehicles that are below minimum MPG which is 22.5 MPG, vehicle sales have decreased approximately about 0.5 percent. However, sales revenues increase by a greater amount due to the added value in vehicles making greater use of fuel economy technology.

For consumers' perspective, increase in price is balanced by the savings of the fuel cost.

Manufacturers benefit from the increase in price of products. However, fuel sector will lose revenue due to increase in sales and production of fuel efficient vehicles.

Act of Congress

The tax is collected by the Internal Revenue Service (IRS) and normally paid by the manufacturer or importer.

References

* [http://www.fueleconomy.gov/feg/info.shtml FuelEconomy.gov Frequently Asked Questions]
* [http://www.epa.gov/fueleconomy/guzzler/420f06042.htm Gas Guzzler Tax: Program Overview]
* [http://www-cta.ornl.gov/cta/Publications/Reports/FeebateEnergyPolicy_FINAL.pdf Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy]
* [http://ddl.me.cmu.edu/ddwiki/images/Gasguzzler.pngGas Guzzler Tax Table]


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