Economists Say Car Rental Excise Taxes Fail Tests of Good Tax Policy

A new study conducted by William G. Gale of The Brookings Institution and Kim Rueben of the Urban Institute was released this week at the National Business Travel Association (NBTA) International Convention & Exposition.

The study, Taken for a Ride: The Economic Effects of Rental Car Excise Taxes, finds the use of car rental excise taxes to fund civic projects to be discriminatory and based on unsound tax policy.

According to the study, the taxes on car rental fail the tests of good tax policy because the funds support activities not related to car rental and unfairly target a small segment of the tax base. In addition, Gale and Rueben contend that the tax negatively affects the local economy.

"Although local governments may need to raise revenue, they should still seek to raise revenue in the most equitable and efficient manner possible," Gale and Rueben wrote in the study. "Stacking extra taxes on car rental customers is unjustified by almost any criteria."

Gale and Rueben suggested that, in place of car rental excise taxes to fund a stadium or arena, a more "economically appropriate financing mechanism would be private investment by team owners and their backers, so that customers from one industry are not being coerced into subsidizing the profit margins of another."

The study suggests that another mechanism for funding these facilities would be user fees, such as taxes on tickets. Therefore, the people who benefit from the investment would pay its costs.

Taken for a Ride was commissioned by Enterprise Rent-A-Car. To view it in its entirety, go to www.nbta.org/traveltaxes.

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