Saturday, January 21, 2012

Taxing The Wrong Thing

They are at it again, and they call themselves Republicans. They being in the NY Times, and they state:

Consider the tax on gasoline. Driving your car is associated with various adverse side effects, which economists call externalities. These include traffic congestion, accidents, local pollution and global climate change. If the tax on gasoline were higher, people would alter their behavior to drive less. They would be more likely to take public transportation, use car pools or live closer to work. The incentives they face when deciding how much to drive would more closely match the true social costs and benefits. Economists who have added up all the externalities associated with driving conclude that a tax exceeding $2 a gallon makes sense. That would provide substantial revenue that could be used to reduce other taxes. By taxing bad things more, we could tax good things less. 

Let us again reconsider:

1. The middle and lower classes drive to work, not for pleasure. They often have no alternative. They may live in New Hampshire and drive to Cambridge. They drive say 100 miles a day at 20 mpg for 5 gallons. This Professor then will tax them an additional $10 per day or $3000 per year! That is an additional tax. If we look at China we see the opposite. You see the poor guy in New Hampshire has no other realistic alternative, to get a home he must drive that distance and he must work long hours and he must have a car. In NYC you pay $25 in tolls, $50 for parking and then gas! However you can take public transport for a mere $30 plus a day. Only the self proclaimed elite would deny that person such access. It is a cost of production hidden in a reduction of compensation for the employee. Not everyone can own a mansion on Brattle Street.

2. Live closer to work, like say Newton, or perhaps Lincoln, and at what price? Perhaps South Boston. Somehow the upper reaches have lost touch with those who clean the streets.

3. Now as for bad things, one can truly argue as to these alleged costs. Congestion is due often to timing, accidents were pandemic in Boston because of the insurance system and yes drivers, and local pollution is dominated by other factors such as factories, and as for global warming, well I will not go there.

4. Real bad things are obesity. Just look at the recent JAMA articles. Currently 15% of annual health care costs growing at 15-18% pa, well outgrowing all others. That is a measurable and manageable problem, tax pounds or calories. Not gasoline.

However and whatever one should think through the details. Facts count, even in economics.