The Netherlands just decided to revamp their car tax. First the taxes on the acquisition of cars, currently 25% of the sales price) and the yearly car tax are scrapped. This is replaced by a base tax of €0.03 per driven kilometer, an amount that is increased for gas-guzzlers, heavy vehicles and rush-hour traffic. Distances and times are determined by GPS in every vehicle.
I absolutely love this system. It is almost exactly how cars should be taxed. The current system does not penalize enough for the externalities of driving (pollution, road wear and congestion) because the marginal cost is fixed (not zero, because there is also the gas tax). This system allows to vary the cost according the intensity of the externality. Only small flaw I see: one should still have a periodic tax on cars, to account for the public space they take by being parked. Or even better, have parking fees levied by GPS as well.
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