Market Affirming Taxes

Markets work because they let people choose while providing incentives for thrift, innovation and hard work. They can fail with goods held in common, or free, where the incentive is to use as much as possible. Addressing this failure is the role of government. Everybody knows I support a carbon tax. I also support congestion taxes. These taxes are market affirming.

Market affirming taxes are those that tweak the incentive system in the right direction by establishing a price for common goods that are abused, but otherwise leave the market mechanism intact. Such taxes essentially create a form of property rights for these wasted goods held in common. The carbon tax, for example, sets a value on clean air and prevention of climate change instead of giving those who would abuse these things a free ride. A congestion tax helps distribute scarce space on the roads and highways. The alternative is to distribute this the same way they distributed bread in the Soviet Union: make people stand in line and let the most agressive cheat.

Congestion is more than just a waste of time. It also leads to more pollution and economic losses. Ask yourself a couple of questions. How much is your time worth per hour? If you sit in traffic for an extra hour a day, what is that worth? Now multiply that by the population of people sitting in traffic, burning gas, wasting time. Would it be worth a couple of dollars to save a couple of hours? Beyond that, by pricing traffic, you give incentive for people to innovate and think of better alternatives than crowding the roads all at the same time. Total wealth is increased.

A good general rule is that if you want to discourage something, you drive up the price and tax it. Ironically, we currently raise most of our revenues by taxing work, saving, investment and income. Presumably, we would prefer to encourage these things. Lets at least also tax those things we consider undesirable. If you are against more CO2, more pollution or more traffic congestion, make them more expensive. Tax them.

Posted by Jack at July 17, 2007 9:39 PM
Comments
Comment #226704

Jack, apart from whether a “congestion tax” addresses the problems you claim, I can’t agree with the philosophical underpinning of your argument.

Lets at least also tax those things we consider undesirable.

Where do we draw the line on this kind of thinking—anywhere? The possibilities are truly endless, and the Democratic Party is a living testament to this passion for raising taxes as the magic solution to any and all problems.

Nobody likes congestion, and very few people at all will subject themselves to the experience of sitting in traffic if they don’t have to. Sitting in a traffic jam is punishment enough for working people without essentially fining them on top of it.

This “congestion tax” as proposed in New York is unnecessary because only a crazy person drives below 86th street anyway unless they’re on their way out of town, somewhere not served by public transportation, or are insanely rich and have a personal parking spot waiting for them at their destination.

The fact is that in New York (which your link described) you can usually get from any place to any other place much faster by subway than you can with a personal automobile. And that’s even before you even factor in parking, which can be well nigh impossible. This is a great success story for public transportation already, and one which was driven by practical necessity in a city of many millions. The fact is that a very small percentage is driving in the current situation, and those who do have pretty good reasons.

Yes, this tax would provide a nice source of revenue for the city, but would not influence behavior and would create tidy little traffic jams—ah, the irony—wherever these “taxes” were collected. Anybody with a job that gives them a personal parking spot, or who is willing to pay more than that tax just to park for one hour, isn’t going to care one way or the other. If you were a minimum wage worker in NY, or even somebody getting several dollars more than minimum wage, and you wanted to drive to work, your parking, gasoline and insurance expenses would literally exceed your salary.

If you want to nail the rich for a few extra dollars, then this is a good way of doing it—but I thought you wanted to curb the problem of excessive driving? This doesn’t.

In practice, the only thing it might accomplish is to make poor and working class folks who want to leave town stay off the road during taxable days and hours. It’s a great deal for the wealthy—keeps them from having to wait in traffic behind any of those grubby plebs.

But I’m just not prepared to sign on to this idea that if something is “undesirable” then we should tax it. Especially considering that the tax-happy side of our political culture considers so many things about its opponents to be “undesirable”—i.e., talk radio, guns, making more money than others, etc. The list stretches all the way to the horizon.

Posted by: Loyal Opposition at July 17, 2007 11:21 PM
Comment #226705

Hmmmm. I just read that parking places in Manhattan can go for nearly a quarter million. Even in Harlem they can go for $50,000.

So … unless you make that congestion tax mindnumbingly huge, why would it make much difference? I’d take some compelling studies and not just a think tank piece to sell me on this idea.

Posted by: Gerrold at July 18, 2007 12:20 AM
Comment #226715

Gerrold & LO

What you both seem to be saying is that in NYC this will not do very much. But it will not hurt either. If only crazy people drive, it would be a tax on crazy. Nothing wrong with that. (That is why I like lotteries - a tax on stupidity.)

Maybe NYC is not the best example, but generally the only we to get a handle on traffic is some kind of pricing. That is how we distribute other things. We saw how a non-price system worked in the Soviet Union and we can see it in every traffic jam.

You can distribute things in three big ways: price, corruption, or rationing/waiting in line. Every system has a variation containing some mix of these and they mesh into each other. Rationing always produces corruption and corruption can evolve into a type of pricing. Where price is dominant, the system is usulaly most efficient, most transparent and most pleasant for the most people.

I favor hot lanes on highways, but some places you need to have the tax. WIthout these kinds of things, traffic is an unsolvable problem, not only in NYC but in any densly populated place. We cannot build enough roads to satisfy demand is we make it free.

Posted by: Jack at July 18, 2007 8:45 AM
Comment #226717
If you sit in traffic for an extra hour a day, what is that worth? Now multiply that by the population of people sitting in traffic, burning gas, wasting time. Would it be worth a couple of dollars to save a couple of hours?

You are undermining your own argument, Jack. If paying the money isn’t a big deal, then everyone will still drive and nothing will be accomplished.

The only way to reduce traffic is to get the other people off the road. Alas, for someone else that other person is you.

Posted by: Woody Mena at July 18, 2007 9:01 AM
Comment #226721

I find it amusing that, just two days ago, a thread was started in the middle about how wrong it is to tax cigarettes, which is definitely something “undesirable”. I love this site!

Here’s an idea. Instead of taxing the congestion, raise taxes on gas in urban and suburban areas. Leave the rural areas alone since they have to drive long distances to get to anywhere, and they aren’t the ones with smog and “ozone action alerts”. Hit the ‘burbs the hardest, since they are the ones that drive the most frivolously. Call it the “Gas Conservation Tax”. Food for thought.

L

Posted by: leatherankh at July 18, 2007 9:20 AM
Comment #226730

I dunno. I have no real problem with cities or county governments experimenting with a congestion tax on a case-by-case basis. I’d hope that revenue collected would go toward mass transit. This is academic to me because I’ve made conscious choices not to live in heavily congested areas.

Posted by: Gerrold at July 18, 2007 10:53 AM
Comment #226734

Jack,

On a normal day, being a conservative independant, I usually agree with most of your missives. However, being that conservative, I am against more and more taxes and am for a smaller, more efficient government. Therefore, the statement…

“Lets at least also tax those things we consider undesirable.”

…is abhorrent to me.

More taxes…bigger government to administer those taxes…more, more more when I want less, less, less.

Also, what is the definition of “undesirable”?

Would that change constantly with whatever party is currently in power?

If the Reps were in power, would there be a huge tax on abortions?

If the Dems were in power, would there be a huge tax on cars that aren’t “green”?

I feel that the word “undesirable” is strictly subjective and arbitrary and is equal to a “point of view” “sin tax” and cannot in any way support more taxes and more government to collect and administer those taxes.

Posted by: Jim T at July 18, 2007 12:00 PM
Comment #226747

Market affirming taxes are those that tweak the incentive system in the right direction by establishing a price for common goods that are abused, but otherwise leave the market mechanism intact.

So Jack I assume you are for taxing tabacco, alcohol, fat rich foods?

I thought consevatives were for taxing only to support government services. That was one of the parts of conservatism I agree with.

Posted by: 037 at July 18, 2007 3:24 PM
Comment #226777

Actually this is a great idea. I find government both undesirable and congestive, so let’s tax government so hard it finds economic gain in downsizing itself. Oh wait. If we did that then government would get more money from bloating itself even more. Never mind!

Posted by: EdB at July 18, 2007 6:56 PM
Comment #226778

I vote “NO.” I am against any tax that is used by the government to change my behavior. That encourages government to try other taxes to change my other behaviors. It’s my life, it’s my freedom and the government should stay out of my ordinary life decisions.
Now! If the government provided extra services for the right to levy that tax, it could be considered a business arrangement. For example, instead of a congestion tax, if the government provided a special lane just for those who had purchased a “Pass” transponder it would be a fair transaction. But to place an extra tax everyone who drives on a certain road (built and maintained by their tax money) would be inequitable.

Posted by: Don at July 18, 2007 7:01 PM
Comment #226786

037 Jim T et al

I am just making the point that the government already taxes good things and it would not hurt to tax some bad ones.

I am not proposing this as a sumptuary tax. It is a way to distribute a scarce resource; it is a user fee. There is no way to build enough roads to satisfy demand in densely populated areas if this remains a free resource.

Don

I agree that the government should stay out of your business. Unfortunately, we have a situation where you (and I) are taking advatage of a free resource and wrecking it for ourselves and others. It is the tragedy of the commons.

I agree that we should have toll roads that price based on demand. Those are being built around the country. Unfortunately, they still will spill out onto ordinary road grids that may well be overloaded. The tax provides a user fee.

Posted by: Jack at July 18, 2007 8:30 PM
Comment #226849
It’s my life, it’s my freedom and the government should stay out of my ordinary life decisions.

Another example of lack of reason…”your” life, “your” freedom are only lived (unless you are an absolute hermit out in the wilds) in community and you are not allowed to hurt others…and others are not allowed to hurt you…this “me” and “mine” is undermining democracy…there is a common good and you are part of it…

Posted by: Rachel at July 19, 2007 9:53 AM
Comment #226871

Jim,
I don’t really think this is comparable to a “sin tax” in that sense. The harm caused by the unrestrained use of fossil fuels is more of a proven, scientific issue, rather than trying to control peoples’ individual morals by restricting drugs, alcohol, guns, etc. The carbon tax would have a clear purpose to solve a specific problem that affects us all, not enforce someone’s religious morals on society.

Rachel,

I also find some of the comments a little strange. I mean, what do you propose to solve global warming? Rationing, controlling when people can drive (like in Mexico City), permits to buy vehicles? Tt seems to me like a simple, easy-to-understand carbon tax is the most free market and “small government” friendly way to make a difference. No bureacracy required to administer it, no detailed tax forms, just a transparent tax for everyone. Unless of course you’re arguing we do nothing. Unfortunately if we don’t do anything regarding problems like energy independence, peak oil, and climate change in the future we’ll probably only wish we had the luxury to go on an internet message board to complain about how awful a carbon tax would be.

Posted by: mark at July 19, 2007 12:36 PM
Comment #226902

I love all these advocates of the “free-Market” will solve everything, including hemmoroids!!
Free market is not free, and has been shown (care to read your history) to cause more pain and suffering than our government has ever even imagined!!
allowing either to go unfettered is stupid.

Posted by: russ at July 19, 2007 5:41 PM
Comment #226904

Rachel -
“…this ‘me’ and ‘mine’ is undermining democracy…”

Say what!?! That’s backwards, woman! What is undermining democracy is when ordinary individual rights are stolen from the individual “for the better good”. There is no better good in democracy than individual rights. What you are talking about is communism, not democracy.

Placing a tax on the ordinary individual right of traveling where and when we please does not serve democracy well. However, it is a great communist ideal. Next there will be a tax on the freedom of religion, then on the freedom of speech, then on … you can see that this is definitely a step in the wrong direction.

If the government wants to slow the amount of traffic going into a city during rush hour they have many other options. They could encourage some businesses to shift working hours through tax breaks. They could encourage businesses to move to suburbs and small towns through grants. These, and other, options are available (and they don’t interfere with individual rights).

Posted by: Don at July 19, 2007 6:14 PM
Comment #226910

russ

The free market includes rule of law, reasonable regulation and the market mechanism. I go with the hertitage foundation index of economic freedom for the definitions.

This type of free market is not the captialism Marx (who never understood the market) described nor the stereotype you probably have in mind. We have a market economy in today’s America. So does most of W. Europe, Japan & Australia. They are different flavors. The old Soviet Union, Nazi Germany and even places like China today or Russia are not market economies, although they have some aspects.

Our U.S. government is limited and that is why it works more or less well. We have to always be vigiliant against it expanding. It is a dynamic process.

Don

Please see above. Commmunists didn’t manage with taxes. They made laws and used state management. A market affirming tax uses the market. It compensates for abused common goods. If you were to make a mess on your neighbor’s land, he would have recourse to charge you. But some goods are held in common. You should not mess them up either, but the only way we can get at those costs is through these sorts of taxes and user fees.

The incentives you mention are actually species of taxes. A tax break to business to change their behavior is exactly the same sort of incentive I am talking about. The problem is yours requires more government management and allows less choice.

Government has long encouraged the growth of suburbs. That is the source of much our current problems.

The market economy employs incentives that help people make better choices. That is what I propose using here re carbon and congestion taxes.

BTW - the free market has more or less cured hemoroids.

Posted by: Jack at July 19, 2007 9:32 PM
Comment #226914

I always liked the idea of a “mind your own damned business tax”.Every time anybody tries to but their nose into anybody elses busines it it would cost them ,like,5 bucks. It would cover everything from family planning to how shaggy one’s lawn is. You know,stuff that really is nobodies business like what color your nieghbors shingles are.In this country we could probably provide universal free healthcare,bail out SS,send every kid to college and still have plenty left over.

Posted by: BillS at July 19, 2007 10:10 PM
Comment #226945

Jack -
“Commmunists didn’t manage with taxes. They made laws and used state management.”

That is not to say that managing individual freedoms with taxes is not communistic. The use of taxes in order to restrict individual freedoms is similar to passing laws that restrict those same freedoms. The point is that it is an attempt by government to restrict individual freedom. Too many laws and taxes already do that.

This method of tax is not the best way to accomplish the goals you desire (it is merely the easiest). The problems are repairable if proper long-range planning is accomplished first. The problem is too much traffic at rush hour or too much traffic altogether. The cause is too many living in suburbs who have jobs in the city. Part of the solution is to re-create enjoyable housing within the city, public transportation systems that work well, flexible work hours, dispersed commercial zones, etc. That takes real work and planning, but results in economic revival in the cities that do the work.

The truth is that many city and county governments have allowed this problem to exist merely because of tax revenues. They WANT the factories and office buildings and businesses in their city. They want MORE of these things in their city. They want them because these businesses create revenue for the city. Now YOU want to tax the individual consumers because the city governments were gluttons and allowed too many businesses to build in their cities. You are blaming the consumers for the problems the local governments created.

Posted by: Don at July 20, 2007 1:24 PM
Comment #226983

Don

These taxes I mention are more a type of user fee. They would create the proper balance and allow choice and markets to determine outcomes.

People have choices. This enhances them. I actually advocate the hot lanes calibrated to time and congestion. If you travel at 5 am, you might not pay anything. If you travel at 5 pm you would pay a lot. That would encourage changes in working times, routes etc.

Most of us have considerable flexibility in when we travel. Some of us can use flexible hours, but even those who do not can easily make a few changes. For example, you might travel 1/2 hour earlier and just have a cup of coffee before work. This idea that people are just victims is pure rubbish. A person who does not have choices doesn’t really want them.

You are advocating much closer government control.

Posted by: Jack at July 20, 2007 9:18 PM
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