The Energy Tax Act of 1978 established a Gas Guzzler Tax on the sale of new model year vehicles whose fuel economy fails to meet certain statutory levels. The gas guzzler tax applies only to cars (not trucks) and is collected by the U.S. Internal Revenue Service (IRS). The purpose of the Gas Guzzler tax is to discourage the production and purchace of non-fuel-efficient vehicles. The gas guzzler tax was phased in over ten years with rates increasing over time. It applies only to manufacturers and importers of vehicles, although presumably some or all of the tax is passed along to automobile consumers in the form of higher prices. Only new vehicles are subject to the tax, so no tax is imposed on used car sales. The tax is graduated to apply a higher tax rate for less fuel-efficient vehicles. To determine the tax rate, manufacturers test all the vehicles at their laboratories for fuel economy, The U.S. Environmental Protection Agency confirms a portion of those tests at an EPA lab. Two separate fuel economy tests simulate city driving and highway driving. A weight average of city (55%) end highway (45%) fuel economies is used to determine the tax.
Vehicles that get at least 22.5 mpg (combined) don't have to pay the Gas Guzzler Tax. The Tax rate goes from $1,000 for vehicles that get at least 21.5 mpg (combined), but less than 22.5 mpg (combined), all the way up to $7,700 for vehicles that get less than 12.5 mpg (combined).
The Gas Guzzler Tax has been criticized by some because the tax does not apply to vehicles that are rated at more than 6,000 pounds unloaded gross vehicle weight (GVW). In practice, it also does not apply to minivans, trucks, or sport utility vehicles (SUVs), a group collectively known as light trucks. One reason for that group's exclusion is that the tax code exempts "non-passenger vehicles"--as defined by the Department of Transportation (DOT)--from the tax. DOT's definition includes pickup trucks; vans; and most minivans, SUVs, and station wagons.
An argument can be made that not applying the gas guzzler tax to light trucks creates an incentive for people to buy those large vehicles instead of smaller, more energy-efficient ones. (In 1978, light trucks made up about 27 percent of retail sales of motor vehicles; in 2006, their share of the market was close to 50 percent.) Vehicles with low gas mileage generate more pollution than do vehicles with higher mileage, so taxing less-efficient vehicles could reduce pollution. The tax was intended to encourage the manufacture and sale of energy-efficient vehicles and the reduction of pollution, but it has been less effective than it might have been (because certain vehicles have been exempt).
The counter argument is that many light trucks are used for purely commercial purposes and that extending the coverage of the tax would impose a burden on businesses that had economic reasons for purchasing larger vehicles. Opponents of extending the tax maintain that many light trucks carry more passengers than automobiles do, so pollution per passenger mile may be lower for those vehicles than for automobiles. Some observers would also argue that the gas guzzler tax should not be extended and that, in fact, the tax on passenger cars should be repealed and replaced with either a tax on the pollution that cars and light trucks emit or a tax placed directly on energy use (such as a gasoline tax). Those critics would say that such taxes would be more efficient than the current gas guzzler tax or a gas guzzler tax extended to light trucks.