Taxes levied on harmful activities kill two birds with one stone. They generate desperately needed revenue while discouraging behaviors whose costs greatly outweigh their benefits.
Actually, I've long been of the opinion that such taxes can lead to a "dependency on the dependency." That is, while a government may intend to discourage the "undesirable" activity it's taxing, it may in the long run grow to depend on the revenue that tax generates, which may in turn reduce incentive to discourage that activity in more effective ways, like anti-smoking or anti-drinking campaigns. After all, do you really want to discourage the activities that build up your revenue?
Now, let's consider the payroll and income taxes Mr. Frank laments for discouraging job creation and investment. While this may be true, maybe our government could develop campaigns or programs to encourage these activities, and so counter the discouraging effects of taxation. I don't know off the top of my head what such a program might look like, so I can't say how feasible it would be. If nothing else, though, the potential for even greater revenue from increasing desirable activity sounds like a fairly strong incentive to me.
I'm no economist, so maybe this "addiction to addiction" hypothesis is just another crackpot theory. I'd be interested to hear if anyone competent has actually explored this?
While it's plausible that a government could come to depend on such revenue from undesirable acts, the act of collecting a tax from undesirable acts will decrease the level of activity. In short, the tax is effective. It kills two birds with one stone (less harmful activity, more tax revenue) as the article describes.
The problem is that we're pretty bad at predicting the long-term implications of discouraging consumption.
Examples:
Tobacco. State revenues in particularly are dependent on tobacco taxes, which were enacted under the theory that since smoking is bad for you, reducing consumption would lower heath care costs. Unfortunately, the end result is a regressive tax that gets more regressive over time as consumption drops -- without the corresponding reduction in health related costs.
Real Estate. Since World War 2, we have been encouraging the development of new building of all kinds. We heavily subsidize personal mortgages, slums, and commercial/retail, both directly via cash incentives and indirectly via massive public works.
Environment. We discourage activity that damages the environment, but often single out marginal activities with minimal impact. For example, New York now fines construction workers $500 each for burning scrap wood in a burn barrel for warmth, to protect society from air pollution. But it's ok to drive 70 miles to work every day.
This is why some [who?] have advocated 100% rebating of the revenue from a Pigovian tax; e.g. if a smoking tax brings in $10 billion, that $10 billion is rebated from the income tax, so there is no revenue. It removes the misincentive for government to want more smokers, or to raise smoking taxes past the point of public health benefit (for the revenue). It also has a a second advantage (debatably) that it alters the tax incidence; e.g. if a smoking tax is regressive (which it is), then if the matching rebate is sufficiently progressive, the combined policy is flat. It doesn't transfer wealth from poor to rich, but from poor smokers to poor nonsmokers (I think).
Figuring out whether to use a carrots or a stick is the problem.
There are already tax credits for certain behavior - various home improvements, research and development, etc. Why not a "employee retention" tax credit - for every year you keep a person on board, after the first, you get $100 * Years (up to a cap) or something, which covers part of the employers side of payroll taxes.
The downside of this is that carrot's don't directly generate revenue, which is what Mr. Frank is going after in this article.
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[ 4.5 ms ] story [ 31.3 ms ] thread+ Carbon Tax
- Sales Tax
commit -m"Deter consumption in proportion to its harm."
Actually, I've long been of the opinion that such taxes can lead to a "dependency on the dependency." That is, while a government may intend to discourage the "undesirable" activity it's taxing, it may in the long run grow to depend on the revenue that tax generates, which may in turn reduce incentive to discourage that activity in more effective ways, like anti-smoking or anti-drinking campaigns. After all, do you really want to discourage the activities that build up your revenue?
Now, let's consider the payroll and income taxes Mr. Frank laments for discouraging job creation and investment. While this may be true, maybe our government could develop campaigns or programs to encourage these activities, and so counter the discouraging effects of taxation. I don't know off the top of my head what such a program might look like, so I can't say how feasible it would be. If nothing else, though, the potential for even greater revenue from increasing desirable activity sounds like a fairly strong incentive to me.
I'm no economist, so maybe this "addiction to addiction" hypothesis is just another crackpot theory. I'd be interested to hear if anyone competent has actually explored this?
[slight edit for grammar]
Examples:
Tobacco. State revenues in particularly are dependent on tobacco taxes, which were enacted under the theory that since smoking is bad for you, reducing consumption would lower heath care costs. Unfortunately, the end result is a regressive tax that gets more regressive over time as consumption drops -- without the corresponding reduction in health related costs.
Real Estate. Since World War 2, we have been encouraging the development of new building of all kinds. We heavily subsidize personal mortgages, slums, and commercial/retail, both directly via cash incentives and indirectly via massive public works.
Environment. We discourage activity that damages the environment, but often single out marginal activities with minimal impact. For example, New York now fines construction workers $500 each for burning scrap wood in a burn barrel for warmth, to protect society from air pollution. But it's ok to drive 70 miles to work every day.
There are already tax credits for certain behavior - various home improvements, research and development, etc. Why not a "employee retention" tax credit - for every year you keep a person on board, after the first, you get $100 * Years (up to a cap) or something, which covers part of the employers side of payroll taxes.
The downside of this is that carrot's don't directly generate revenue, which is what Mr. Frank is going after in this article.
I respectfully disagree.