Tuesday, September 08, 2009

Truck Rental 28% Higher for LA to LV than LV to LA

I posted a few days ago about TV ads sponsored by the Nevada Development Authority encouraging California businesses to move to Las Vegas for lower taxes and less red tape. The chart above (click to enlarge) of U-Haul rates for one-way truck rentals provides some interesting evidence that the ad campaign might be working, since the demand for trucks leaving LA for Las Vegas is much higher than for trucks in the opposite direction, based on the differences in rental rates for the same equipment (26-foot truck).

Bottom Line: The rental rate is $364 for a one-way truck rental from LA to Las Vegas, which is 28.7% higher than for a one-way rental from Las Vegas to L.A., suggesting there is a net outmigration from LA to Las Vegas.

23 Comments:

At 9/08/2009 1:31 PM, Blogger Chuck said...

NOT SUPRISING AT ALL.
TAXES + Insurance + Fees.
After all it's LA, California.

Anyone who travels on business and rents a car at the airport in major metropolitan areas can see that taxes and fees add 25% + or - to the quoted rate. This is why economists need to get out in the real world on occasion instead on relying on neat "fuzzy" mathematical solutions based on questionable data to provide color slides to satisfy their boss.

 
At 9/08/2009 1:57 PM, Blogger Larry Sheldon said...

I suspect the economics is simpler than all that.

The rates reflect the difference in revenue-miles between the two places.

It suggests that some number of the trucks have to deadhead, or be bulk-hauled fro LV to LA.

I have not tried it in years, but years ago you could get a rental car in the San Francisco Bay Area going to Los Angeles for free. (You pay gas and oil enroute.)

 
At 9/08/2009 2:35 PM, Blogger Bill said...

Chuck: Taxes and fees might account for some of the difference but do you have any actual data to suggest that it is the sole cause for the price differential? Clearly there are other factors at work that these though since this method works to track outmigration from declining areas of the nation to faster growing areas also.

 
At 9/08/2009 2:38 PM, Blogger OA said...

Chuck, Nevada has sales taxes as well plus a boat load of other fees. As you'd imagine they have no problem taxing visitors.

Quote Riverside, CA to Las Vegas and you get around the same rates and same differential. Riverside is hardly a major metropolitan area, but is one of the highest foreclosure areas in California.

Fullerton, CA to Las Vegas is slightly less miles, but about $393, or $24 higher. LV to Fullerton is $275, or $8 less. So about $30 greater differential.

Palmdale, CA to LV is $263 versus $250 the other way.

Hardly seems like it's just a differential in taxes, insurance, and fees.

 
At 9/08/2009 2:41 PM, Blogger 1 said...

"This is why economists need to get out in the real world on occasion instead on relying on neat "fuzzy" mathematical solutions based on questionable data to provide color slides to satisfy their boss"...

Well Chuck that might be a good point but what if there is a lot more traffic leaving L.A. going to Vegas than people moving from Vegas to L.A.?

Wouldn't that also drive the prices?

 
At 9/08/2009 3:08 PM, Anonymous Anonymous said...

Oh for crying out loud? How much lousy analysis must we endure?

Prices, incomes, taxes and insurance are all generally higher in LA than LV. Price is the residual measure of supply and demand. Rather than look at prices which are only partially and indirectly affected by the traffic from LA to LV, how about simply looking at the U-Haul Index of the NUMBER of 1 way rentals from LA to LV?

You cannot look only at prices and decompose the difference between a mass exodus and other factors affecting price. Geez louise!

 
At 9/08/2009 4:04 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET 1.4 million people. The departures slowed this past year only because people couldn’t sell their homes.
www.mdp.state.md.us/msdc/Pop_estimate/Estimate_08/table5.pdf

These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods), and retirees seeking to make their pensions provide more bang for the buck.

The irony is that a disproportionate number of these seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions – in order to avoid the high taxes that these same employees pushed so hard through their unions.

 
At 9/08/2009 4:07 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

Chuck's point about airport car fees and taxes is valid. But few rent moving TRUCKS at the airport.

Yes, there are vehicle rental fees in urban CA. But true also in Las Vegas, Nevada. Nevada has a healthy (well, UNhealthy) sales tax and some other costs.

But not personal OR CORPORATE income tax. That's a huge factor to consider.

 
At 9/08/2009 4:15 PM, Anonymous Six Ounces said...

Higher prices are a necessary but not a sufficient condition for higher quantity of Los Angeles to Las Vegas rentals.

Contrary to all the objections, Chuck is correct. It is Dr. Perry's burden to prove his "bottom line", not Chuck's burden to provide evidence to disprove it. He need not demonstrate that higher taxes, insurance and fees account for 100% of the variation in rental prices. There are different income levels to consider as well as Larry's point about the return route.

The bottom line is that price alone is insufficient to support the bottom line of the post. As Anon 3:08 said, U-Haul does publish and index of one-way rentals. Anybody check the latest release?

BTW, it's well known from historical data that there's been an outmigration from CA going on for years with AZ, OR, WA, NV and UT being the primary recipients of domestic migrants. This supports the outmigration hypothesis but not the Los Angeles to Las Vegas hypothesis in particular.

This is clearly a case of a pre-determined conclusion desperately seeking evidence - any evidence.

 
At 9/08/2009 4:22 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

Actually, the differential of moving from CA to other states sometimes is even a larger percentage than from LA to Las Vegas.

For instance, to take a 24' Budget truck from San Diego to Boise, Idaho costs $1,064.70. To take the same truck at the same time from Boise to San Diego costs $641.70.
http://www.budgettruck.com/

Thus it costs 66% more to move from SD to Idaho than the other direction. That ain't just taxes and fees. That's primarily supply and demand.

In 2007 we lost net 260,000+ California residents to other states. During that timeframe it cost double or triple to rent trucks heading out of state.

These latest figures are the result of us losing "only" 140,000 net CA residents in 2008. If the real estate market even partially recovers from it's 50% drop in CA, expect the departures to grow rapidly, and the rate differential percentage to zoom upward.

 
At 9/08/2009 4:29 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

I find it surreal that some commenters are trying to make the case that the ONE WAY rental trucks (absent fees and taxes) would cost essentially the same in either direction (LA to Vegas). To even entertain that idea seems to suggest a disconnect by commenters with the disaster that is CA.

Presumably the folks reading this blog are economists, or have a strong economics background. This response is disappointing.

 
At 9/08/2009 4:36 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

Breaking Bad: California vs. the Other States
by Richard Rider, Chairman, San Diego Tax Fighters

Version 1.488
Revised 30 August, 2009
RRider@san.rr.com


Here’s a depressing comparison of California taxes and economic climate with the rest of the states. The news is breaking bad, and getting worse (I keep updating this article):

California has the 4th highest state income tax in the nation. 9.55% at $47,055. 10.55% at $1,000,000

By far the highest state sales tax in the nation. 8.25% (not counting local sales taxes)

Highest state car tax in the nation – at least double any other state. 1.15% per year on value of vehicle.

Corporate income tax rate is the highest in the West (our economic competitors). 8.84%

2009 Business Tax Climate ranks 48th in the nation.
www.taxfoundation.org/research/topic/15.html

Fourth highest capital gains tax 9.55%
www.thereibrain.com/realestate-blog/capital-gains-tax-rates-state-by-state/109/

Highest gasoline tax (averaging 64.5 cents/gallon) in the nation (July, 2009). When gas hits $3.00/gallon, we are numero uno – because unlike many states, we charge sales tax on gasoline purchases (built into the price).
www.api.org/statistics/fueltaxes/

Fourth highest unemployment rate in the nation. (July, 2009) 11.9%. National rate 9.4%.
www.bls.gov/news.release/laus.nr0.htm

California’s 2009 “Tax Freedom Day” (the day the average taxpayer stops working for government and start working for oneself) is again the 4th worst date in the nation – up from 28th worst in 1994.
www.taxfoundation.org/research/show/387.html

To offset lower state revenues, 29 states are proposing 2009 state tax and fee increases totaling $24 billion. California, with 12% of the nation’s population, is proposing 47% of that increase (6/5/09).
http://money.cnn.com/2009/06/04/news/economy/states_budget_crises/index.htm

1 in 5 in LA County receiving public aid.
www.latimes.com/news/local/la-me-welfare22-2009feb22,0,4377048.story

California has 12% of the nation’s population, but 36% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients – more than the next 7 states combined. Unlike other states, this “temporary” assistance becomes much more permanent in CA.
http://weblog.signonsandiego.com/weblogs/afb/archives/034662.html

California prison guards highest paid in the nation.
www.caltax.org/caltaxletter/2008/101708_fraud1.htm

California teachers easily the highest paid in the nation.
www.nea.org/home/29402.htm (CA has the second lowest student test scores)

California now has the lowest bond ratings of any state, edging out Louisiana.
www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/03/19/BA7F16JLKH.DTL


California ranks 44th worst in “2008 lawsuit climate.”
www.instituteforlegalreform.com/component/ilr_featured_tools/29/item/LAI/19.html

In 2005 (latest figures), for every dollar Californians sent to D.C. in taxes, we got back 78 cents – 43rd worst.
www.taxfoundation.org/taxdata/show/22685.html

 
At 9/08/2009 4:36 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

You want more of this? I've GOT more of this!


America’s top CEO’s rank California “the worst place in which to do business” for the fourth straight year (3/2009). But here’s the interesting part – they think California is a great state to live (primarily for the great climate) – they just won’t bring their businesses here because of the oppressive tax and regulatory climate.
Consider this quote from the survey (a conclusion reflected in the rankings of the characteristics of the state): “California has huge advantages with its size, quality of work force, particularly in high tech, as well as the quality of life and climate advantages of the state. However, it is an absolute regulatory and tax disaster.”
http://tinyurl.com/cyvufy

California, a destitute state, still gives away college education at fire sale prices. Our community college tuition is by far the lowest in the nation. How low? Nationwide, the average community college tuition is 4.5 times higher than California CC’s. This ridiculously low tuition devalues education to students – resulting in a 30+% drop rate for class completion. In addition, 2/3 of California CC students pay no tuition at all – filling out a simple unverified “hardship” form that exempts them from any tuition payment, or receiving grants and tax credits for their full tuition.
www.sacbee.com/static/weblogs/capitolalertlatest/020722.html
www3.signonsandiego.com/stories/2009/jun/29/1n29fees225829-two-year-colleges-fees-likely-rise-/

On top of that, California offers thousands of absolutely free adult continuing education classes – a sop to the upper middle class. In San Diego, over 1,400 classes for everything from baking pastries to ballroom dancing are offered totally at taxpayer expense.
www.sdce.edu

California residential electricity costs an average of 35.4% more than the national average. For industrial use, CA electricity is 56.2% higher than the national average (2007).
www.eia.doe.gov/cneaf/electricity/epa/fig7p5.html
www.eia.doe.gov/cneaf/electricity/epm/table5_6_a.html

It costs 38% more to build solar panels in California than in Tennessee – which is why European corporations have invested $2.3 billion in two Tennessee manufacturing plants to build solar panels for our state.
http://tinyurl.com/llussb

Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET 1.4 million people. The departures slowed this past year only because people couldn’t sell their homes.
www.mdp.state.md.us/msdc/Pop_estimate/Estimate_08/table5.pdf

These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods), and retirees seeking to make their pensions provide more bang for the buck.

The irony is that a disproportionate number of these seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions – in order to avoid the high taxes that these same employees pushed so hard through their unions.

As taxes rise and jobs disappear, we lose our tax base, continuing California’s state and local fiscal death spiral. This spiral must stop NOW.

NOTE: If you would like to receive my free periodic “Richard Rider Rant” e-newsletter with more of this type of information and analysis, just drop me an email at RRider@san.rr.com. To see the latest version of this “Breaking Bad” column, plus samples of my free “Richard Rider Rant” e-newsletter, go to my blog at www.open.salon.com/blog/richard_rider. This report also is available as a 2 page Word file for formatted printing.

 
At 9/08/2009 4:37 PM, Blogger Mark J. Perry said...

See new post on U-Haul rates for Detroit and Houston.

 
At 9/08/2009 4:53 PM, Blogger 1 said...

"I find it surreal that some commenters are trying to make the case that the ONE WAY rental trucks (absent fees and taxes) would cost essentially the same in either direction (LA to Vegas)"...

I think some of these folks commenting here are Keynesians...:-)

 
At 9/08/2009 6:52 PM, Anonymous Six Ounces said...

No, 1, some of the commenters here are SCIENTISTS who actually understand what does and does not constitute proof of a hypothesis. Not accepting the feeble evidence thus far presented does not mean that, intuitively, I do not agree with the premise. Science demands more than anecdotes and conjecture.

It turns out that the median family income in Las Vegas is $62K and the median family income for LA is $51K, so that adds some evidence in favor of Dr. Perry's hypothesis if we assume the income distributions of movers from these two areas are more or less similar. Then again, there might be reason to believe lower income people are more likely to leave Las Vegas and higher income people are more likely to leave LA because of unemployment and income tax rates.

Richard, read Chuck's post again. He wasn't referring to airports. California sales tax is now 9.25%. Many states add fees to hotels and rental rates.

No one is suggesting that one-way rentals between two cities should be equal. The only suggestion was that the inverse demand function contains variables other than quantity demanded, such as income, taxes, prices of substitutes and compliments, expectations, etc. There was also the suggestion that price is simultaneously driven by supply considerations. This is Economics 101 - first two weeks of class. Let's try to think beyond a two variable analysis, shall we?

A higher price in one direction than the other is not ipso facto of higher demand in one direction than the other. You've learned how to post hyperlinks. Now learn to think like an economist.

 
At 9/08/2009 7:40 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

Nice try, Six Ounces. Talk about feeble evidence!

You (inaccurately) list the CA state sales 9.25% sales tax as high. Indeed such a tax is!

But don't you think Nevada ALSO has a sales tax of some consequence? Didn't YOU check to see what it is before you presented your feeble evidence?

First off, you are wrong about the CA state sales tax. It is "only" 8.25%. Local sales taxes are added on. They can range from zero to 2% more. Naturally LA total sales tax is significantly higher than the state sales tax -- totaling 9.75%.

But Las Vegas total sales tax is 8.1%. So the delta is only 1.65% more -- hardly a significant figure in comparing the rental rates.

The reason that Chuck's airport reference is important is that some cities charge an extra fee/tax for airport area car rentals -- but not truck rentals. Chuck DID use the airport rental as an example to claim high fees on renting trucks.

Here's Chuck's post, which apparently you didn't read closely.

**Anyone who travels on business and rents a car at the airport in major metropolitan areas can see that taxes and fees add 25% + or - to the quoted rate.**

Chuck is citing AIRPORT taxes and fees as typical of what people would pay to rent u-haul type trucks. I pointed out that truck rentals don't pay such high fees.

Where is my error? Hint: I didn't make one -- YOU did. Some scientist YOU are!

 
At 9/09/2009 12:31 AM, Anonymous Six Ounces said...

Well Richard, you not only win first prize for shameless and annoying serial self-promotion on another person's blog, you also win the Gold medal for failure to comprehend the English language and the basics of the scientific method.

First of all, neither Chuck nor I have to present ANY evidence. Your dismissal of reasoned objections is "feeble".

A thesis is not true until proven otherwise. It is the burden of the one advancing a thesis to present clear and convincing evidence in support of their case, adequately accounting for every criticism. A single counterexample blows it out of the water.

Chuck was pointing out that many states impose costs which are not reflected in advertised rates. This is true with many rental vehicles, hotels, cell phones, etc. As someone who purports to be a "tax fighter", you should understand this.

He was suggesting the researcher look into a plausible explanation for price disparity which is not explained by demand differences.

Perhaps there are no additional taxes, fees, and insurance in Los Angeles. Chuck was raising a reasonable doubt. He should be commended for doing so and the supporters of the thesis need to provide the evidence to address that criticism rather than casually dismiss him. If you'd ever been in academia, you'd know that's how it works in paper presentations and in the peer-review process.

Chuck NEVER suggested people rent U-Hauls at airports and I did not miss it in his statement; that was a straw man you created. He was suggesting a host of reasons why the fees might deviate which are NOT explained by demand differences.

The 9.25% was a typo. My bad. I live in California and understand very well what the base rate is. Your statement that a 165 basis point difference is "hardly significant" is nonsense. It explains roughly 5% of the variation in prices (for this one data point) which is NOT explained by demand differences (a little less, depending upon the relative elasticities of vehicle supply and demand).

What Dr. Perry did not present was that for smaller trucks (14-17 feet), the price differential is only about 16-17%. So the tax difference explains 10% of the variation in prices. It's not particularly large, but it whittles away at the main point.

The author ignored relative incomes in the two communities, a major component of demand. I graciously provided evidence in support of his thesis in the subsequent post. But even then it is not a given that the income characteristics of people leaving two different cities are identical.

The most egregious omission is assuming rental truck supply is perfectly inelastic and identical in the two markets. That assumption is implicit in saying that any difference in price MUST necessarily be explained entirely by differences in demand.

Did the author do an analysis of the price differentials between LA and Las Vegas when there was no large scale California outmigration? NO! And I suspect no one could find the data for that. The differential might have ALWAYS existed because of the particular supply/demand characteristics between these two cities.

The bottom line (which you either didn't carefully read or don't understand) is that no meaningful conclusion regarding a demand function can be gleaned from a single data point (or two) at one point in time.

His intuition is likely correct, but to state that the data is anything more than suggestive is poor science.

That pretty much shatters your feeble defense.

 
At 9/09/2009 1:58 AM, Anonymous Richard Rider said...

Six Ounces, your response is as lightweight as your moniker. BTW, as a self-important "scientist" wallowing in your superior intellectual standards, why do you hide behind a fake name?

First off, this is a BLOG ITEM, not a doctoral thesis. The weight of the evidence does not have to meet the same "peer review" standards to be essentially correct.

Second, let's go back to Dr. Perry's summation of his blog item:

** Bottom line: The rental rate is $364 for a one-way truck rental from LA to Las Vegas, which is 28.7% higher than for a one-way rental from Las Vegas to L.A., suggesting there is a net outmigration from LA to Las Vegas. **

This is not a proof statement. He is presenting data that SUGGESTS that there is net migration out of LA to Las Vegas. He is NOT claiming that ALL (or indeed even most) of the price difference is due to simple supply and demand (it is, but that's a different matter). Yet you smugly assert that since 5% of the price difference is due to different sales tax rates, his point is disproved.

Third, you (inaccurately) presented the CA sales tax rate, but failed to include the Las Vegas tax rate (a rate I found within 60 seconds by Googling). That's intellectual dishonesty though omission, and you know it. Your rigorous analysis fails this fundamental test of truthfulness.

Fourth, you opine that "The author ignored relative incomes in the two communities, a MAJOR component of demand." And where is YOUR evidence to back this unsubstantiated assertion?

Fifth, you state that:

**The most egregious omission is assuming rental truck supply is perfectly inelastic and identical in the two markets. That assumption is implicit in saying that any difference in price MUST necessarily be explained entirely by differences in demand.**

Six Ounces, kindly cite the segment of Dr. Perry's blog entry that in any way asserts that "any difference in price MUST necessarily be explained entirely by differences in demand."

Be honest (for a change). You made up this straw man argument -- an assertion Dr. Perry clearly did NOT make.

Smugly again remind me how rigidly you practice scientific analysis.

 
At 9/09/2009 11:02 AM, Anonymous Six Ounces said...

Keep prattling on, EZ Rider. I'm not the one with a blog photo with a smug smirk on his face.

I have a blog name. Anonymity on the internet is advisable . My understanding of economics is self-evident to anyone educated enough to know the subject. And I don't serially post a half dozen copied and pasted links to my own blog like a parasite.

I did NOT state (smugly or otherwise) that a 5% explanation of price variation "disproves" his point. I said that at least some of the variation is explained by something other than demand differences and it's his duty to seek others.

I do not have to include ANY information on tax rates to raise the issue that differences in taxes might explain some of the difference. There you go not understanding the whole burden of proof thing again. I'm not doing any "rigorous analysis" here. The person advancind the thesis must do so. The audience need only question the truth of the premises and the logic of the argument.

I did not "opine" that the author ignored relative incomes. I stated it as an incontrovertible fact. My evidence is that the author ignored relative incomes - there's not a word about it in the post.

The demand function has numerous components. Chief among them is the price of the good. Another important component is income. Other components include the price of substitutes, compliments, taxes, tastes and preference, and expectations). Not examining these other factors is a flawed analysis.

Do you understand the meaning of the word IMPLICIT? Apparently not. If one concludes that a price differential is due largely by relative demand, it implicitly assumes supply is fixed and identical in the two markets. If you don't understand that, you need about eight more years of economics education.

I understand that a blog needn't arise to the level of an academic paper, but if there's to be a discussion there also needs to be a semblance of thought about rigorous analysis. Dr Perry was kind enough to add more detail in an additional post to bolster his argument. You, on the other hand, keep parroting that I need to prove him wrong from your position of ignorance and hysteria.

I have stated, several times, that I actually believe the hypothesis. Proof requires something more deep than your fragile ego.

I apologize if I suggested that Dr. Perry's suggestion was more than a suggestion.

BTW, the name Six Ounces means I see things for what they ARE, not a glass half full or half empty. You might want to loosen your tie. It cuts off blood supply to the brain.

 
At 9/09/2009 11:20 AM, Anonymous Richard Rider said...

Six Ounces, the more you write, the less impressed I am with your self-proclaimed vaunted intellect.

You state:

**Do you understand the meaning of the word IMPLICIT? Apparently not. If one concludes that a price differential is due largely by relative demand, it implicitly assumes supply is fixed and identical in the two markets.**

I understand "implicit," but obviously you don't have a clue about the word "identical." How else could one conclude that if "a price differential is due LARGELY by (sic) relative demand, it implicitly assumes supply is fixed and IDENTICAL in the two markets." What rubbish!

That's a fundamental error of logic. And you simply can't see it. I'm amazed.

But at least it explains your wise decision to remain anonymous.

I'm running out of time for this spirited exchange, and no one else reads this thread anymore anyway.

 
At 9/09/2009 11:30 AM, Blogger Larry Sheldon said...

Why don't you two get a room?

Or a blog of your own?

Nothing useful here--I'm out.

 
At 9/09/2009 11:42 AM, Anonymous Six Ounces said...

Richard, in order to explain price differentials between two cities, one must look at EVERY component of supply and demand, not just one. That is the sum of my argument which you are repeatedly denying is necessary.

If you estimate a demand equation alone, the implicit assumption is that supply is fixed. That's why it's proper to use simultaneous equation models. I don't expect the blogger to do this. I merely stated that supply factors must be considered before rendering a conclusion.

If the prices of one way rental were identical to and from the cities, would that imply there was equal movement between the two cities? Hardly! The price would still be influenced by incomes, availability and prices of substitutes, and the supply of trucks. If you leave an important explanatory variable out of a model, it enters the error term. That is what I mean when I say it assumes supply is identical - perhaps a poor way of explaining it. The point is that you are violating ceteris paribus.

Did it occur to you that higher INCOME/BUSINESS taxes in California affect the supply of trucks there? Did you consider how the price of land and property taxes affect commercial real estate prices and rents in California? What happens to price when you add costs to doing business. Did you do any 60 second checks of Nevada vs. California income and business taxes? Of course you did which makes your failure to understand their impact on supply even more bizarre.

Doh!

 

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