UC Davis Institute of Transportation Studies

There has been considerable discussion about the extent to which motor-vehicle use in the US is “subsidized,” making petroleum-based motor vehicle use more attractive than other transportation modes. Estimates of these subsidies vary widely, and in many cases can be criticized on methodological grounds. In this paper we estimate corporate-income-tax, sales-tax, property-tax, and personal-income-tax subsidies related to motor-vehicle use. Whereas previous estimates of sales-tax and corporate-income-tax subsidies have been built piecemeal, tax provision by tax provision, we offer an alternative method, based on the difference between actual tax payments of the motor vehicle industry compared to other industries. We estimate that the total “tax subsidy” to motor-vehicle users in the US may be in the range of $19–64 billion (109) per year, or $0.11–0.37 per gallon ($0.03–0.10 per liter) of motor fuel. However, the amount of the subsidy, and hence the magnitude of its effect, depends greatly on the tax baseline with respect to which the subsidy is estimated. (The property-tax subsidy is particularly uncertain.) We emphasize that without doing a full equilibrium analysis, we cannot say how eliminating these subsidies would affect social welfare.