Gas Guzzler Tax

Overview

Congress established Gas Guzzler Tax provisions in the Energy Tax Act of 1978 to discourage the production and purchase of fuel-inefficient vehicles. Manufacturers of new cars that fail to meet the minimum fuel economy level of 22.5 mpg (a combined value of 55% city, 45% highway estimates) have to pay this tax graded according to the amount in excess. The tax is intended to discourage the production and purchase of inefficient cars. It is paid by the manufacturer or importer. The amount paid is displayed on new cars' fuel economy window labels. It is based on the CAFE standard, not on the new test methods for fuel estimates that will include the use of MAC systems. The tax does not apply to trucks, light trucks and SUVs.

The current gas-guzzler tax can range from $1,000 to $7,700, based on the combined mpg rating of a car in question.

State of play

The National Highway Traffic Safety Administration has proposed to enhance the tax within its reformed CAFE standard. Although the national fuel economy standard has increased to 35 mpg by 2020, there is not yet an updated specification for the gas guzzler tax. The tax scheme hasn’t been revised since 1984 and has not kept pace with inflation, economic growth or increasing transportation needs.