May 11, 2011

Luxury taxes on cars?

Something that's obvious to me living in California is that the level of tax cheating in the state is now extremely high. Whether from serving on the jury in an Iranian immigrant used car dealer tax evasion case or observing the expensiveness of the cars on the road, it's clear that there is a vast tax evasion economy in California.

A state needs a wide variety of taxes to reduce the payoff from figuring out how to game any single one. 

Southern California is not (yet) the old Ottoman Empire where people lived in seeming shacks with opulent interiors to keep the Sultan's tax farmers from noticing and then squeezing them. There's still an if-you've-got-it-flaunt-it attitude that's especially visible in car purchases. Thus, the most straightforward way to tax gray market income would be through a luxury tax on car purchases. For example, besides the existing taxes, you could establish a simple incremental luxury sales tax on new and used car purchases that would be zero percent up through $10,000, then add 1 percentage point for each $10,000 of sales price over that. 

Thus, a $20,000 car (e.g., a nice, big, new Ford Fusion or Hyundai Sonata, 4 cylinder, automatic transmission, power everything), would cost an extra $100 in luxury tax.

Price       Tax
$30,000 - $300
$40,000 - $700
$50,000 - $1,200
$60,000 - $1,800
$70,000 - $2,500
$80,000 - $3,300
$90,000 - $4,200
$100,000 - $5,200

Or, you can put the starting point wherever you like, presumably at whatever you think is the most expensive car you'd buy. An $80,000 car won't get you from Arleta to Azuza any faster than a $40,000 car or a $20,000 car, so taxing more heavily social climbing cars doesn't cost society much in lost efficiency, just as major league baseball's luxury tax on the Yankee payroll doesn't mean that Alex Rodriguez quits baseball to take up a more lucrative career as a personal trainer.

Of course, cheating on this anti-cheating measure would happen -- dealerships would make kickback arrangements with seemingly 3rd party shops to add $4,000 wheels, and the like. But, this seems like a pretty reasonable way to catch a little of the tax evasion that is going on at low cost to the honest and thrifty.


Anonymous said...

>catch some of the tax evasion that's going on at low cost to the honest-

Are tax levels legitimate enough that tax evasion is dishonest?

Formerly.JP98 said...

Woohoo, more taxes! This is what I call being part of the solution!

Anonymous said...

God bless the tax cheaters.

Anonymous said...

We are not going to destroy the FedGov beast if you keep suggesting new taxes for them.


Mike said...

Yeah what we need is more taxes... Most of the fancy cars on the road are leased vehicles and are usually owned by people who most certainly don't have any real money.
Can I suggest venturing into the real world and trying to own a business in CA? Get back to me with what you find out about government intrusion and the tax level.

Harry Baldwin said...

Methinks the Sailer Luxury Car Tax would bump up the resale value of '98 Accords.

Wes said...

Could we make the luxury tax payable up front in cash? I mean stipulate that it can't be paid for by a loan. It is insane how people are still financing cars they can't afford. I see kids in their 20s and a lot of NAMs rolling around in BMWs. They are either financing for 7 years or leasing but it shouldn't be going on. It is sign we are still too credit friendly in this society.

Wes said...

This is tangentially related to taxes I suppose. Is it only White people that disinherit their children? There is a story today about a Michigan timber baron that hated his family so much he wrote in his will that no one could inherit anything until his youngest grandchild had been dead for 21 years. Then we have people like Warren Buffet giving away most of his money and don't want his kids to carry on the family fortune. Is this mainly a White thing? Is this why our parents were willing to disinherit us from our own country through mass immigration?

Here is a link to the timber millionaire story:

Bob said...

California already has a system in place to do this, a vehicle registration tax.

Arnold passed some sort of temporary cut to this way back, I didn't live here then so I don't know what the status of it is.

Right now for a 3-year-old $50,000 car you have to pay about $580 a year in fees to keep it legally registered, plus a flat amount that everyone pays that is about $50.

My car is a worth about 12K blue book so I pay about $110 a year plus the flat $50. Your old accord i bet is about $25 + $50.

Spending on conspicuous consumption is a negative-value status competition, so this is a GREAT tax that improves the economy and may allow other taxes to be cut. Also easy to enforce. No current tag, pull you over, take your car!

Mac said...

"Southern California is not (yet) the old Ottoman Empire where people lived in seeming shacks with opulent interiors to keep the Sultan's tax farmers from noticing and then squeezing them."

Ottoman Empire? Hell I heard of that trick being used in Illinois in the 1990s.

Bob said...

If you are in California and you know someone who live here has tags that are more than 2 months expired OR an out-of-state plate, you can easily turn them in online on this webpage:

People with unregistered Mexican/out-of-state places but living in California:

1. Have no insurance, endangering our safety (out of state insurance companies might not pay a claim for someone who claims the vehicle is in Arizona but actually lives in CA)

2. May be illegal aliens

3. Aren't paying the tax that the 97% of us who follow the law do

4. Are avoiding mandated smog tests and polluting our air

5. May be completely unlicensed drivers.

Bob said...

"Are tax levels legitimate enough that tax evasion is dishonest?"

Sounds like someone is looking for justification for cheating on his taxes.

Yeah go ahead and do your part to make our country more like Mexico or Egypt where nobody pays taxes.

King of Escutcheon said...

There is a Porsche dealership on every other street corner in LA. There is also a ton of living-beyond-your-means in LA, which is why people like Dave Ramsey do well on the radio.

Anonymous said...

Stopping immigration and deporting illegals would do more to smash the "tax evasion" market then anything.

RKU said...

Actually, wasn't the big California Republican issue of a few years back actually to *cut* the CA car tax by some huge fraction, and Schwarzenegger got into office partly on that issue?

So if we're talking "real world" rather than Sailer-land, I'd expect the WSJ and its GOP friends to propose completely eliminating all taxes on expensive cars (to spur job creation) while maybe raising them on cheap cars (to cut the deficit)...

#1 Lada dealer said...

I read it through again and can't tell if you're joking. As a way of jabbing People Not Like Steve in the eye, this appears sound. However I'm challenged to see how today's waste-and-inefficiency solution does not inevitably beget the reverse-reverse-social-engineering of tomorrow, a la some autoquivalent of the Boat Building Investment Act. This Lexus tax would be a cobweb catching angry media-magnetic flies while the wasps and hornets in Teherangeles and North Hollywood break through.

Anonymous said...

i have been reading your blog for sometime... this is the first time, I think, you ever had a post advocating a tax. considering what the government has done with current taxes, do you really think this is wise??

on the other hand, this sounds like one of your 'real' solutions for carbon footprint you should realize by now the elite don't want to fix 'global warming' which has an elastic definition like the 'war on terror' - they want to make them perpetual crises which are perpetual justification to seize power.

Anonymous said...

He is suggesting a tax not as a tax raise but to nail the Middle Easterner/West Asia (eg Armenians, Persians, Afghan, whatever) people he detests.

Isaac Bickerstaff said...

The focus here is on the wrong side of the equation.

The cheaters may be hiding their wealth in an underground economy, but the State of California openly flaunts it's rapacious nature. If marauding invaders were to enslave us and pillage as much property as the State does, we might be tempted to resist.

This is a government of the parasites, by the parasites and for the parasites.

If the goal is to save the fiscal health of the State a good first step would be to outlaw the public employee unions and cease to provide public services to illegals. Not a new tax.

Once we've reduced the cost of government at all levels to 10% of national income, and returned it to performing its legitimate functions, we can come up with clever schemes to squeeze the cheaters.

Attny Gen Holder said...

He is suggesting a tax not as a tax raise but to nail the Middle Easterner/West Asia (eg Armenians, Persians, Afghan, whatever) people he detests.

People with unregistered Mexican/out-of-state places but living in California:

1. Have no insurance, endangering our safety (out of state insurance companies might not pay a claim for someone who claims the vehicle is in Arizona but actually lives in CA)

Both of these ideas sound like they are discriminatory and would result in disparate impact lawsuits.

In fact, Oakland was forced to stop DUI checkpoints a few years back because they were catching disproportionately too many undocumented de facto citizens.

Once stopped, these undocumented de facto citizens frequently had their cars impounded for not having car registration, mandated insurance and/or driver licenses.

Harry Baldwin said...

Wes said...This is tangentially related to taxes I suppose. Is it only White people that disinherit their children?

As far as I know, hip-hop stars, heavyweight champs, and NBA players spend all their money so inheritance isn't an issue.

Anonymous said...

Let's strangle the economy some more!

beowulf said...

Replace state tax code with land value tax. Easy to enforce, impossible to evade.

TGGP said...

I am also puzzled why Henry George's tax is such a marginal idea. Apparently it worked really well in Hawaii for a while.

Wes watching RKU w/ Satellite tech said...

Harry, good point, NAMs seem to dissipate their wealth long before it can be passed along. But Asians seem to accumulate wealth and keep in their extended families in pretty creative ways.

eh said...

One sign of a government gone very bad.

What's Wrong with Taxation?

An interesting little book which I picked up for 50c at a college library sale back in the 70s (you can find some amazing stuff at such events -- also there's still nothing like browsing a good-sized used bookstore).

A bit about the author.

Traveller said...

An article in favor of taxes? Please look maybe someone from the left hijacked your site.

The taxation is kept down by cheaters. If the state had a perfect way to get money from everyone, the tempation to raise taxes more and more would be overhelming.

Who pays taxes ruins everyone life. It is a moral duty to check before if the government deserves those money.

SFG said...

Y'know, Steve, you're starting to sound more like a communitarian than a conservative, which I don't actually consider a bad thing. I've always fantasized about an Old Right-Left alliance to take down the banks and pull all the troops home.

I think Massachusetts actually does something like this...

Wandrin said...

"This is tangentially related to taxes I suppose. Is it only White people that disinherit their children?"

If you imagined an empathy bell curve similar to the IQ one where the horizontal scale was labelled left to right from sociopath to near-kin to far-kin to others to dolphins and the centre point of different ethnic group's bell curves were shifted along the horizontal scale then maybe yes.

If an ethnic group had its centre point at near-kin then they'd have more sociopaths, more concern for their near-kin, little for others beyond that and none for dolphins.

Whereas if white people's empathy curve was shifted to the right so the mid-point was say at far-kin then the result might be less sociopaths, less concern for extended family but more for others beyond extended family than other ethnic groups and quite a lot for dolphins (although that in a way might tend to a kind of idealist-sociopath).

Anonymous said...

An opulence tax is an excellent, common sense, old idea whose time has come back.

Since the whole point of conspicuous consumption is flaunting your absurdly expensive toys before the Great Unwashed, the rich will love the idea of paying an opulence tax on top of an already stratospheric sticker price.

But don't limit the opulence tax to cars. Also include private planes, yachts, and lavishly priced watches, jewelry, handbags, shoes, designer clothes, as well as country club dues, extravagant restaurant meals and ultraexpensive works of art.

Peter A said...

"Who pays taxes ruins everyone life. It is a moral duty to check before if the government deserves those money."

Yes, this is why life is so good in Italy, Russia, Pakistan and Mexico where everyone cheats on their taxes, and awful in Switzerland and Germany. What a world we live in when so-called "conservatives" are encouraging people to behave like Sub-Saharan baboons.

Reg C├Žsar said...

Like high insurance rates, this could be skirted pretty easily with the "green-plate strategy" I first noticed in Manhattan in the late 1970s. Corvettes and others of that ilk were more often than not sporting green Vermont plates.

After moving to the Midwest and making many trips through Chicago, I saw the same phenomenon in that city-- only there, it was green Iowa plates. I suspected that had I gone to any city in California, the sports and luxury cars would have green Colorado plates!

Whether it was "driven" by insurance or taxes, those green rectangles were saving their owners a goodly sum of green.

Sgt. Joe Friday said...

"No current tag, pull you over, take your car!"

In Santa Ana there have been agitators who have suggested that the SAPD leave "Latinos" alone who are in violation of the vehicle registration laws, because Santa Ana is a "Latino" city. In other words, it's already de facto a part of Mexico, let's have Mexican-style law enforcement too!

"But don't limit the opulence tax to cars. Also include private planes, yachts..."

Already tried that under Bush 41. It nearly destroyed the boat building business in Maine, which was probably one of the reasons Bush lost Maine to Clinton in '92.

SF said...

Tax religious property. A couple I know has a completely phony church group and probably uses their home as its headquarters, making it exempt from property taxes.

Anonymous said...

Steve, you have allowed your personal car problem to pollute your mind. You are driving what you think of as a clunker and see all those beautiful fancy new cars everywhere.

As always, envy leads to new tax proposals.

Free yourself. Most men figure out that it is wise to love the woman you sleep with. Less well recognized but nearly as important is the need to love your car.

If you don't love your car your eyes will stray. You will trade it in and incur a huge expense. In my current issue of Road & Track they feature a $300,000 Ferrari and a $270,000 Aston Martin. In the back they report on a new Bugatti for $1.5M.

Yet pricey as these new cars are, they pale beside the prices fetched by older cars. The same issue mentions a former R&T staff member whose older restored Ferrari sold recently for $3.9M. Any original Shelby Cobra today will go for several million at auction. The big money is in restored cars.

So the moral is clear - restore your Honda. A new paint job is about $1,500. A new interior maybe $500. Even if you replace all the chrome and get new wheels you still won't have spent very much, and you will have a love object. Strangers will stop you in the supermarket parking lot and tell you how much they admire you.

Most importantly you will stop blogging about new taxes.


jody said...

how would this work with a lease? i assume many of the vehicles are leased because there's no way all these people have the money to be buying these cars and SUVs. maxed out credit cards, sweetheart mortgages courtesy of the US federal government, food stamps, and leased vehicles, is clearly how most of the mexicans are doing this stuff. conspicuous consumption, as one economist put it, is the order of the day in the california car culture.

jody said...

the gas guzzler tax, while not exactly the same, already applies to many of these cars. it's also progressive in the way you describe. trucks and SUVs are exempt. hard to believe they continue to allow SUVs to be exempt and that liberals never talk about this. seems like a slam dunk no brainer agenda item for them.

your luxury tax would hit electric vehicles. they would, presumably, be exempt under CA law. certainly the volt and leaf, but perhaps not a tesla.

The Anti-Gnostic said...

Here in Atlanta, our Range Rover customers sure are an enterprising bunch.

Are these vehicles paid for in cash? Stolen? Or do they report them stolen to the noteholder and then "scrub" the vehicle? WTF?

I used to see a lot of hair salons and travel agencies with a ridiculously low amount of traffic given rents in their locations. On the rare occasions you saw a group there, it was always high-end cars and after business hours. Then I read about several of these places busted for money-laundering and it made sense. We're blessed with vibrant times in the A-T-L.

Crawfurdmuir said...

One recalls the luxury yacht tax imposed under the Omnibus Budget Reconciliation Act of 1990. It did little to keep the rich from owning yachts, which many of them already had. On the other hand, it severely affected the building of new yachts, shutting down boat-building companies and putting their employees out of work.

Advocates of luxury taxes ought to read Mandeville's "Fable of the Bees." The private vice of luxury leads to public benefit in the form of employment for those engaged in providing the luxuries. Because the demand for luxury is highly elastic, taxing luxuries will serve principally to bring about economic distress for those people.

Stable tax revenues can be expected only from taxes on economic activity that is relatively insensitive to their effect. Trying to tax "the rich" (however we define them) without taxing those who are not rich never works very well, because the taxed activity - whether it be buying a yacht or expensive car, or realizing a capital gain - is so easily avoided.

Anonymous said...

Or just adopt the Dutch system of taxing every new or imported used car at 40% of the manufacturer catalog price for the vehicle and all options (they did introduce a sliding scale based on emission figures a few years ago, something else California would love).

Works wonders to generate income. Works even better to reduce the number of new cars purchased, keeping old gas guzzlers on the road so their owners have to buy more gas (with the 70% taxes on that) than they would buy if they could afford a new car.

Bay Area Infiniti said...

Honestly, it seems like a way to punish the poor. You can't assume that ALL rich people cheat on their taxes; many are honest too. And what about the poor who may also fib on their taxes? Why should those who have a penchant for luxury cars have to bear the brunt for everyone?