Saturday, October 6, 2012

How to stop them taking our money

Okay, so what do you think all these things have in common?

  1. Bridge tolls
  2. Parking meters
  3. Traffic tickets
  4. Gas taxes
  5. Wealth taxes

That's right, they're taxes, fines and fees that people resent paying to the government. And sometimes politicians and bureaucrats have noticed that they can get a substantial revenue stream from these taxes, fines and fees. They've gone beyond simply collecting these taxes, fines and fees and resorted to chasing them, by overzealous enforcement, imposing unnecessary fees and keeping taxes too high. Worse still, many people accuse government officials of chasing revenue in this way, whether or not they're actually doing it.

Now, what do these things have in common?

  1. Bridge tolls
  2. Parking meters
  3. Gas taxes
  4. Cigarette taxes
  5. Alcohol taxes

You got it, they're Pigovian taxes, named after the English economist Arthur Pigou, who argued that when an activity creates a "negative externality" - a cost to society beyond its cost to the individual - a tax can discourage people from engaging in that activity. Tax cigarettes, and the number of people who smoke goes down.

The thing about Pigovian taxes is that people are already prone to resent them. They want to smoke, or drink, or drive over bridges, and here the government is slapping a tax on it. Now suppose that you have a Pigovian tax that the government also happens to get lots of revenue from. Well, first of all it's an incentive for the bureaucrats and politicians to discourage people from stopping the activity. Why would you want to stop people from driving over your bridge, if you'd lose that revenue and maybe default on your bridge bonds?

Secondly, relying on Pigovian taxes for revenue is a bad idea because it creates the suspicion that the government is chasing revenue. That provides the people who already resent the tax with an ready-made scrap of populism to cloak their selfish resentment in.

Now what do all the following have in common?

  1. Buses
  2. Sidewalks
  3. Public schools
  4. Bike lanes
  5. Trains

Yup, they're things that the government usually funds with the taxes, fines and fees listed above. Critically, of the people who pay the taxes, fines and fees above, many don't see these things as being for them.

So imagine I'm a car owner. I park my car at the curb, or in a municipal lot. I see my parking fee (me!) get collected by the government (them!) to spend on buses (them!). The source of the money is separated from control over the money and benefit from it. Who wouldn't resent that?

Of course I'm not the first to observe this. Matt Yglesias has been talking about it for years, as I wrote in 2010. Yesterday he had a particularly apt critique of a plan by Bill deBlasio to tax the wealthy to fund school improvements. Donald Shoup has long argued that his Pigovian parking fees should be returned to the parkers in the form of "parking benefit districts." On Wednesday, Stephen Smith argued on Twitter that allocating toll funds to transit leads to overspending. "Toll money is unearned, economically or politically, and thus is ill spent. Easy come, easy go."

So what's the solution? Something along the lines of Shoup's parking benefit districts. Yglesias writes, "We'd start out with things like congestion fees and carbon taxes that serve non-revenue policy goals but do raise money. Then we'd add on some land taxes and VATs and such to fun public services. Once that's squared away, you can do redistribution with a progressive payroll tax, a small wealth tax, whatever."

The point is to get it from "They're taking my money and giving it to those people" to "We're getting our money back in a form we can use." The trick with Pigovian taxes is to give it back to people in a form that doesn't further encourage that negative externality. You don't want to use parking fees to build more garages. You want to think, "What did the people park here for?" and use it to fund the things they like - ideally an alternative to parking there that they will find acceptable.

This brings me back to the congestion pricing disaster. People resented congestion pricing because it felt like "them taking our money and giving it to those people." Gridlock Sam is thinking along these lines with his something for the drivers, but by building more highways he gets it drastically wrong. Bridge toll money needs to go into something that the drivers will appreciate, but not driving.

Incidentally, the MTA payroll tax was a disaster despite being a broad-based tax just because it was so badly handled that it pissed everybody off, having to file a bunch of forms just to pay thirty dollars a year. I'm sure it was designed that way from the beginning.


neroden@gmail said...

I argue that wealth taxes are in fact Pigovian taxes, due to the corrosive and evil effects of concentration of wealth on our society.

Now, of course the very rich people, the 0.1%, will feel that they don't get anything from those taxes. Well, what they get is, they get to not be guillotined; they get to not have their houses burned down; they get to have all their wealth taken by angry, hungry mobs.

I think we have to remind them of that frequently and repeatedly in order to maintain the very necessary public policies of wealth taxes.

neroden@gmail said...

Uh, that's "they get to not have all their wealth taken by angry hungry mobs".