Do you ever feel like the United States tax system is using you? Are you paying fees to the government at every turn. Or perhaps you feel like you simply don’t understand how these things work, but in your gut, you feel like you’re missing a big part of the picture that impacts your life. Most people are not privy to just how much Americans are taxed, often by other names, and through what avenues. Motor vehicle fees are one of many types of payments to government that can be called a “hidden tax.”
Here we will explore motor vehicle fees, where they originated, and how they impact the lower class disproportionately. We will also divulge the amount of motor vehicle fees that governments collect yearly.
What are Motor Vehicle Registration Fees?
Motor vehicle registration fees are taxes by another name that are levied upon the registration of motor vehicles, including cars, trucks, motorcycles, and other types of vehicles. State and local governments collect these taxes, and the amounts are typically based on the value of the vehicle, its weight, or its age. These taxes generate revenue for state and local governments to fund transportation-related programs and projects, such as road maintenance, bridge construction, and public transportation. To be sure, it is important to maintain roads, build and maintain bridges, and provide public transportation. But, today, the primary beneficiaries of spending for this type of infrastructure are the wealthy. That point is cogently made in Dr. Mitch’s book, A Taxing Problem, which points out the inherent injustice in the way our governments provide for the funding of itself and its programs.
Motor vehicle registration taxes are a form of “use tax,” meaning that they are levied on the use of a vehicle on public roads and highways. This is different from a sales tax, which is levied on the purchase of a vehicle, regardless of whether it is used on public roads or not. Sales taxes on our vehicles are substantial, and that topic has been dealt with in another post.
Purpose of Motor Vehicle Registration Taxes
Motor vehicle registration taxes primarily generate revenue for state and local governments to fund transportation-related programs and projects. These taxes are a direct way to generate revenue from those who use the transportation infrastructure. In that way, they are rationalized as a fair tax.
In addition to funding transportation-related programs and projects, motor vehicle registration taxes can also be used to encourage certain types of behavior. For example, some states offer tax breaks or incentives for drivers who purchase electric or hybrid vehicles to encourage the use of more environmentally friendly vehicles.
Impact on Consumers
Motor vehicle registration taxes can have a significant impact on consumers. These taxes increase the cost of owning and operating a vehicle. For example, if a motor vehicle registration tax is based on the vehicle’s value, a more expensive vehicle will result in a higher tax bill. Tax based on vehicle value can be particularly burdensome for low-income households that may struggle to afford the cost of owning a vehicle in the first place.
Motor vehicle registration taxes can vary significantly from state to state, creating confusion for drivers who move from one state to another. For example, the motor vehicle registration tax in California is based on the vehicle’s value, while in Arizona, it is based on the vehicle’s weight. This can make it difficult for drivers to plan for the cost of vehicle ownership when moving to a new state.
Impact on Governments
Motor vehicle registration taxes also impact governments. These taxes are a substantial source of revenue for state and local governments, but they can be unpredictable from year to year. For example, economic changes, consumer behavior, or transportation infrastructure needs can impact the revenue generated by motor vehicle registration taxes.
Additionally, motor vehicle registration taxes can create administrative burdens for governments. Collecting and processing these taxes requires significant resources and can be challenging for small or underfunded government agencies.
Motor vehicle registration taxes can also significantly impact consumers, increasing the cost of owning and operating a vehicle. As governments continue to rely on these taxes to fund transportation-related programs and projects, policymakers must balance the need for revenue with the impact on consumers and the administrative burden on governments.
One way that governments assure a steady flow of income from registration fees is through requiring regular re-registration of vehicles periodically. This of course adds to the expense of owning and using a vehicle, costs that weigh most heavily on the poor and middle class.
History of Motor Vehicle Registration Fees
Here is a brief history of motor vehicle registration fees in the United States so you can better understand where they came from and how they came about:
- The first motor vehicle registration fees were introduced in 1901 in New York to generate revenue for the state and ostensibly track the number of vehicles on the roads. Requiring the registration of vehicles will serve the purpose of tracking the number of vehicles on the roads. The charging of fees for registration, of course, only serves to generate revenue for the states.
- By 1911, many states had implemented motor vehicle registration fees to generate revenue and to regulate vehicle ownership and operation.
- In the 1930s, during the Great Depression, many states raised their motor vehicle registration fees to generate more revenue as the economic crisis had reduced other sources of income for states.
- During World War II, some states imposed additional registration fees on commercial vehicles to support the war effort.
- As highway construction boomed in the 1950s and 1960s, many states raised motor vehicle registration fees to fund highway construction and maintenance.
- In the 1970s and 1980s, many states introduced additional fees, such as emissions testing fees, to regulate vehicle emissions and air quality.
- In the 1990s, some states introduced higher fees for specialty license plates to generate revenue for specific causes or organizations.
- Recently, some states have increased motor vehicle registration fees to generate revenue for transportation-related programs, such as road and bridge repairs, and to support environmental initiatives, such as electric vehicle incentives.
Yearly Revenue from Motor Vehicle Registration Fees
The amount of revenue generated by motor vehicle registration fees in the United States varies from year to year. It depends on various factors, such as the number of registered vehicles, changes in registration fees, and changes in vehicle ownership patterns. According to the U.S. Census Bureau, state and local governments collected a total of $37.3 billion in motor vehicle registration fees and taxes in 2019.
This number includes both motor vehicle registration fees and other taxes and fees related to motor vehicles, such as fuel taxes and vehicle rental taxes. However, it does not include revenue generated by tolls or other fees that are specifically related to the use of highways or bridges. Nor does it include fees charged for driver license fees.
Motor vehicle registration fees vary widely from state to state, with some states charging a flat fee for vehicle registration and others basing the fee on the value, weight, or age of the vehicle. Additionally, some states charge additional fees for specialized license plates or other services related to vehicle registration.
Regarding federal revenue generated by motor vehicle registration fees, there is no direct federal tax on motor vehicle registration. However, the federal government does collect excise taxes on the sale of new trucks, trailers, and other large vehicles. In 2019, the federal government collected a total of $7.8 billion in excise taxes on large vehicles, according to the U.S. Department of the Treasury.
Therefore, the total amount of revenue generated by motor vehicle registration fees and related taxes in the United States in 2019, including both state and local fees and federal excise taxes, was approximately $45.1 billion.
Motor Vehicle Registrations Fees Mainly Impact Lower Income People
Motor vehicle registration fees can disproportionately impact the lower class and the middle class, as these fees are a fixed cost that can represent a significant portion of their income, and even their wealth.
Regressive Taxation
Because motor vehicle registration fees disproportionately affect low-income households, they are regressive. Regressive taxation means lower-income households pay a higher percentage of their income in taxes than higher-income households. As regressive as these taxes are relative to income, they are even more so relative to wealth. This is a point convincingly made in A Taxing Problem by Dr. Mitch. Motor vehicle registration fees represent a larger share of low-income households’ income than for higher-income households. Again, this is even more true relative to wealth.
For example, if a state charges a flat fee of $100 for motor vehicle registration, a household that earns $20,000 per year would pay 0.5% of its income to pay the fee, while a household that earns $200,000 per year would pay only 0.05% of its income. This means that low-income households are paying a higher percentage of their income in motor vehicle registration fees than higher-income households, making it a regressive tax. Now if a household with a net worth of $1,000 paid the same fee to register a vehicle, that $100 represents 10% of net worth. If a household with a net worth of $50,000 paid the same registration fee, that fee would represent only .2% of its net worth. Relative to net worth, that fee is 5000 times greater. Looking at the fairness of taxation through the lens of wealth instead of income is the focus of A Taxing Problem by Dr. Mitch.
The impact of motor vehicle registration fees on low-income households can be particularly significant because many low-income households rely on their vehicles for transportation to work, school, and other essential services. In some cases, low-income households may not have access to public transportation, making vehicle ownership a necessity.
When low-income households are forced to pay a larger share of their income or wealth in motor vehicle registration fees, they must cut back on essential goods and services, such as food, clothing, and healthcare. This can lead to increased financial stress, reduced access to basic needs, increased risk of poverty, increased stress and the health problems that come with poverty and stress.
To address the regressive nature of motor vehicle registration fees, policymakers could consider several solutions. One potential solution is to exempt low-income households from the fees or to provide a sliding scale fee based on income. For example, some states offer reduced fees for seniors or disabled individuals, and this could be expanded to include low-income households.
The best solution, though, as shown in A Taxing Problem by Dr. Mitch is to eliminate these charges and fund government and its services through applying a small annual tax on wealth, or net worth. In this way, the expenses of government that enable the accumulation and preservation of wealth would be borne in direct relation to the economic benefits enjoyed by each taxpayer.
Limited Mobility
Motor vehicle registration fees are a type of tax that state and local governments charge on the registration of motor vehicles. These fees have a significant impact on the poor, primarily through limited mobility.
Limited mobility refers to the limited ability of low-income households to access transportation due to the cost of vehicle ownership. Motor vehicle registration fees can increase the cost of owning a vehicle, making it more difficult for low-income households to afford vehicle ownership. Registration fees, in turn, can limit their mobility and access to essential services, such as work, school, and healthcare when they can’t afford to own and maintain a vehicle.
For low-income households living in areas with limited public transportation, vehicle ownership may be the only means available to them. When motor vehicle registration fees increase the cost of vehicle ownership, low-income households may be unable to afford the registration cost. As a result, they may be unable to drive their vehicles legally, limiting their access to essential services and opportunities.
Limited mobility can have significant consequences, including increased financial stress, reduced access to education and employment opportunities, and increased risk of poverty. For example, suppose a low-income household cannot afford the cost of motor vehicle registration fees. In that case, members of that household may be unable to commute to work, limiting the ability to earn a living wage. Even if public transportation is available, its use typically requires more planning and time to be mobile.
Motor Vehicle Taxes as “Hidden Taxes”
Motor Vehicle Registration Fees are “hidden taxes” or “hidden fees” because they are not always transparent to the consumer. Here are a few reasons why:
- Fixed Cost: Motor vehicle registration fees are a fixed cost not directly tied to the vehicle’s value or the owner’s income. This means that the registration cost may not be immediately apparent to the consumer and can be easily overlooked or forgotten.
- Billed Annually: Motor vehicle registration and other fees, such as insurance premiums and property taxes, are typically billed annually. This can make it difficult for consumers to distinguish the specific costs associated with registration fees.
- Paid Through Dealerships: Vehicle registration fees are sometimes paid through dealerships as part of the vehicle purchase process. This can make it difficult for consumers to understand the specific costs associated with registration fees and can contribute to a perception of “hidden fees.”
- Variations Between States: Motor vehicle registration fees can vary significantly between states and even between counties within a state. Differences in fees can make it difficult for consumers to understand the specific costs associated with registration fees when moving from one location to another.
The perception of Motor Vehicle Registration Fees as “hidden taxes” or “hidden fees” is often due to a lack of transparency in the billing process and cost variations between states and counties. However, policymakers and government agencies can work to increase transparency and clarity around these fees to inform consumers better and address concerns about hidden costs. Of course, the need for motor vehicle ownership and use is greater today that it was in the early 1900’s when people traveled shorter distances, traveled on foot or horse drawn wagons, etc. Without motor vehicle ownership our economy would collapse. That economy in economic terms benefits each one of us in direct proportion to our wealth or net worth. That is why these fees are today unfair. They contribute to the lack of economic justice that fuels the divisions and anger in our society and lead to violence. This form of paying for government, should, in the view of Dr. Mitch be eliminated in favor of a just tax system as described and advocated in his book, A Taxing Problem.