Wednesday, January 21, 2009 - The Progress & Freedom Foundation Blog

The "GPS Tax," e-Health & the Privacy Implications of Tech Upgrades for Government Monopolies

Just before the New Year, Mike Masnick reported:

It's been well over five years since we first heard about a plan in Oregon to attach GPS devices to cars and tax drivers based on how much they drove and the idea hasn't become any better in the intervening years... but apparently it's still being pushed. Oregon's governor is trying to move forward with the plan. One of the reasons behind the bill has nothing to do with a more efficient way to tax drivers, but because the state is gaining less revenue from its gas tax since there are more fuel-efficient cars on the roads these days. Of course, rather than reward drivers for driving more fuel efficient cars, this sort of tax punishes them, and actually encourages the use of less fuel efficient vehicles. And, of course, that doesn't even begin to get into the potential (and likely) privacy problems brought about by any system whereby the government has full access to a GPS system on your car.

This is a great example of the problems that often arise when trying to bring into the digital age areas of the economy monopolized or dominated by government. There's a clear (if imperfect) analogy here to Obama's ambitious goal of digitizing health records: both are great ideas that raise special privacy concerns because of the heavy involvement of government. These privacy concerns are certainly not unwarranted: I wouldn't want the government to have access to my car's location or my medical history at any given moment or a complete record of where I've driven or what doctors I've seen. But just as relying on paper health records is clearly stupid (and dangerous), it would make a hell of a lot more sense for drivers to pay for road use depending on "where, when and how far they drove"--as in a small pilot project in the UK.

Today, state and Federal taxes on every gallon of gasoline are intended to serve two conflicting purposes--but do a poor job with both.

First, the taxes fund the cost of building and maintaining roads. But the tax provides only a very rough proxy for how much driving Americans are doing, and says nothing about which roads are actually being used or when. So government road planners have to guess at which roads need to be upgraded or where new roads are required. Worse, the current system does nothing to encourage rational decisions on the part of drivers, who currently have no direct economic incentive (other than saving time) not to drive during rush hour or to use less-congested roads.

Second, the current tax system is what economists would call "Pigouvian": it is intended to correct the negative externalities (air pollution) caused by driving. But, again, taxing total gallons of gas consumed is a poor proxy for emissions. As Cato's Jerry Taylor points out (start podcast at 1:33), cars are already sufficiently computerized that if we really wanted to punish pollution through the tax system, we could directly tax emissions themselves by having each car keep track of unhealthy emissions and then uploading that data, say, at the car's annual inspection.

So in a rational world, we'd abolish gasoline taxes entirely and institute user fees to fund the cost of roads & highways that reflect actual use. If government insists on it, we could also tax emissions directly. (We could make the whole transition revenue-neutral, lest this reform result in higher taxes/fees.) Merely by reducing congestion, better economic incentives could significantly reduce air pollution.

If roads weren't run by government monopolies, this kind of change would have happened a long time ago. Although many people associate toll booths with road privatization, no private business would ever choose a technology as cumbersome (and costly) as toll booths if they had the option of using a system as seamless and invisible to the user as GPS-tracking or even existing transponder-based systems (e.g., E-Z Pass, FasTrak). Maybe there's a more efficient or privacy-friendly option out there, or at least on the horizon. I don't know, but I suspect competing road operators would figure it out.

Some drivers might still be uncomfortable with the idea of a private company having access to their driving data, but that private company would have a strong incentive to compete for privacy-sensitive drivers by offering strong data protection policies (such as data anonymization and retention limits), which would of course be enforced under the FTC's existing "unfair & deceptive trade practices."

But because government has virtually monopolized the road system, we're stuck with a terrible choice:

It's a hard choice. I don't know what the right answer is--other than privatizing the roads, enforcing corporate privacy policies strictly under existing law, and increasing Fourth Amendment protections against government access to user data kept by companies. Since road privatization is unlikely to happen in an era when we are (re)nationalizing core industries through bailouts, I suspect that we'll end up having to choose either technology (with all its benefits) or privacy, when we should be able to have both.

President Obama has talked about "investing" $50 billion in tax money over the next fivenegyears to subsidize the digitization of health records. While one might hope that these records wouldn't be directly accessible to government in the same way that driving records would be under the Oregon or UK projects, it's by no means clear that this won't be the case, given the Federal government's dominant role in the health care sector. If the Golden Rule ("He Who Has the Gold, Makes the Rules") holds, increased government spending on health care across the board--whether in the name of e-Health or universal health--will surely lead to greater government control of the health care system. That will probably mean greater access to e-health records. If politicians can access FBI files of their opponents, they'll probably abuse access to health care records, too. No safeguards are ever perfect, of course, and invasions of privacy would happen if the data were kept by private companies, but at least those companies would be accountable in court, in the court of public opinion and in the marketplace if they allowed such violations by their employees or corporate partners, or simply failed to protect such a "honey pot" of data.

I'd like to see the most modern technology used across the board--whether it's for roads or health care. I just don't want the real Big Brother--government--to have access to that information, a problem that is only going to increase as government's role in our lives grows.

posted by Berin Szoka @ 10:47 PM | Privacy