Yes, on the basis of environmental concerns, a fuel tax is superior to a car tax. No argument from me on that. I would much prefer to shift taxes from cars to fuel on an environmental basis. (Let's leave aside other externalities of a car such as congestion, which may justify taxing big cars purely because they are big.)

I would point out, however, that such fuel-taxes will have to be Unionwide, whereas car taxes can be implemented locally: In geographically small countries, fuel taxes can be evaded by "fuel tourism" in much the same way wealth taxes can be evaded by Swiss bank accounts. Cars, on the other hand, can be taxed locally, because cars have to be registered locally in order to be driven legally.

As for the political feasibility of compensating vs. taxing; in theory you are right. And in theory, theory and practise are the same. But take note of the most recent tax downsizings in Denmark: Taxes were downsized for the rich and richer, and the part of the tax downsizing that was financed at all was financed by green taxes. Now, I have nothing against green taxes, but using the income from green taxes to pay for tax downsizings that mainly benefit rich fatcats, that I do have a problem with.

(In the Danish example, a median-income family got precisely zero net benefit from the tax downsizing scheme - I'll leave it as an exercise to the reader to extrapolate downwards in the income distribution.)

- Jake

Friends come and go. Enemies accumulate.