NO one enjoys paying taxes — and no politician relishes raising them. Yet some taxes actually make us better off, even apart from the revenue they provide for public services.
Taxes on activities with harmful side effects are a case in point. Strongly favored even by many conservative Republican economists, these levies are known as Pigovian taxes, after the British economist Arthur C. Pigou, who advocated them in his 1920 book, “The Economics of Welfare.” In today’s deeply polarized political climate, they offer one of the few realistic hopes for progress.
The rest of the article lays out the case for Pigouvian taxes on everything that generates negative externalities with revenue neutral lump sum rebates. While I think it is great that Prof. Frank is making this argument, I have a few quibbles:
- Why is a vehicle weight tax the example? A gas or carbon tax would be a much more appropriate tax to implement. For example, suppose someone buys a very large car to add to their personal fleet but drives it rarely, if at all, then their tax bill would be much greater than the damage caused by the purchase. Taxing the gasoline put into the car, which is an increasing function of vehicle weight, would more directly align the tax bill with the damages.
- When introducing the rebate notion, Prof. Frank states: "And it’s an iron law of politics that prospective losers lobby harder to block change than prospective winners do for its adoption." Is that necessarily true? Or is it more like this: It's an iron law of politics that relatively few prospective losers with large individual costs lobby harder to block change than the relatively abundant prospective winners with small individual gains do for its adoption.
- I realize that revenue neutral tax rebates is a gimmick to get tax-increase-phobic fiscal consersatives to agree to a tax increase, but at some point the debt-to-GDP ratio will be such that Pigovian taxes might best be designed to generate revenue.