Gas Guzzler Tax

The National Energy Act: Energy Tax Act of 1978 (US), or the Gas Guzzler Tax, imposed set tax penalties on car manufacturers who fail to meet the minimum fuel economy level of 22.5 mpg_‑US (10.5 L/100 km; 27.0 mpg_‑imp) in the United States. 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, ${\mathit {F_{h}}}$.

$F_{i}=\left({\frac {1}{{\frac {.495}{F_{c}}}+{\frac {.351}{F_{h}}}}}\right)+.15$

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,

$p_{t}=\sum _{i}{p_{i}q_{i}}\,$

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 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. Currently, the additional cost of efficient hybrid systems range from $2,000-$10,000 on the vehicle sticker price.

Manufacturers benefit from the increase in price of products. However, the fuel sector may lose revenue if the increase in sales and production of fuel efficient vehicles doesn't just encourage people to drive more.

Market impact

The Gas Guzzler Tax led to the successive downsizing of most major American passenger autos, and the combination of the tax and late-70's/early-80's economic woes substantially killed the American full-size car as it had been known up to that point. Coincidentally, it only took one product cycle before the first modern SUVs were introduced, the Cherokee XJ and the S-10 Blazer (in 1984). By the time Ford introduced the Explorer, the SUV had become the common man's luxury vehicle and Ford capitalized on this using extensive cross-marketing, most notably with Northwest clothier Eddie Bauer.

Critics of the Gas Guzzler Tax contend that the increased fuel economy of the US passenger car fleet observed since 1978 must be considered in the context of the increased market share of mid-size and full-size SUVs. Many consumers' stated reasons for SUV purchase (comfort, interior room, and a perception of safety based on the vehicle's size) also apply to the now-obsolete American full-size car as produced from the 1920s through the 70s; critics contend that the dominance of the modern SUV is a direct result of the Gas Guzzler Tax.

Act of congress

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

External links

• FuelEconomy.gov Frequently Asked Questions
• Gas Guzzler Tax: Program Overview
• Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy
• Gas Guzzler Tax Table