Pigovian taxes
Posted: 24 September 2008 10:19 AM   [ Ignore ]
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No kidding—there really is such a thing as a “Pigovian tax”—see this Wikipedia description. The basic concept is to tax the damage that anybody does to society as a whole. The primary target of such taxes would be environmental insults. A carbon tax is a good example of a Pigovian tax. We tax everybody for the CO2 they put into the atmosphere. We even have a rough idea of what the size of this tax might be: about $30 per ton of CO2. We already have a good idea of the amount of CO2 we’re putting into the atmosphere, so we can figure the likely tax take and reduce other taxes to insure no net tax increase.

I prefer Pigovian taxes to regulatory approaches because they more precisely address the disparate needs of society. I don’t want to forbid Joe Citizen to drive his CO2-belching, gas-guzzling SUV—I just want him to pay the cost of his actions. I don’t want to declare that gas-guzzlers are bad and electric cars are good—I want to let each person make his own choice, but pay the proper cost of that choice.

There is a problem arising from globalization. What’s to stop polluters from moving to countries with no carbon taxes, manufacturing their stuff there and shipping it here? We still get stuck with the same amount of CO2 in the atmosphere? I think that that the solution here is to apply the tax at the point of consumption, not the point of production. This, unfortunately, would be more difficult to implement—we’d have to track raw materials through the entire production process, a monstrous task. However, it might be possible to implement this as in parallel with a Value Added Tax—a smarter version of a sales tax.

So the question I put to the readership to kick things off is this: are Pigovian taxes preferable to regulatory control of environmental problems?

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Posted: 24 September 2008 11:01 AM   [ Ignore ]   [ # 1 ]
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Chris Crawford - 24 September 2008 10:19 AM

No kidding—there really is such a thing as a “Pigovian tax”—see this Wikipedia description. The basic concept is to tax the damage that anybody does to society as a whole. The primary target of such taxes would be environmental insults. A carbon tax is a good example of a Pigovian tax. We tax everybody for the CO2 they put into the atmosphere. We even have a rough idea of what the size of this tax might be: about $30 per ton of CO2. We already have a good idea of the amount of CO2 we’re putting into the atmosphere, so we can figure the likely tax take and reduce other taxes to insure no net tax increase.

I prefer Pigovian taxes to regulatory approaches because they more precisely address the disparate needs of society. I don’t want to forbid Joe Citizen to drive his CO2-belching, gas-guzzling SUV—I just want him to pay the cost of his actions. I don’t want to declare that gas-guzzlers are bad and electric cars are good—I want to let each person make his own choice, but pay the proper cost of that choice.

There is a problem arising from globalization. What’s to stop polluters from moving to countries with no carbon taxes, manufacturing their stuff there and shipping it here? We still get stuck with the same amount of CO2 in the atmosphere? I think that that the solution here is to apply the tax at the point of consumption, not the point of production. This, unfortunately, would be more difficult to implement—we’d have to track raw materials through the entire production process, a monstrous task. However, it might be possible to implement this as in parallel with a Value Added Tax—a smarter version of a sales tax.

So the question I put to the readership to kick things off is this: are Pigovian taxes preferable to regulatory control of environmental problems?

Do people get taxed for breathing or will there be a constitutional prohibition against taxing personal metabolism?  Perhaps based on the right to privacy?  wink

I remember hearing about a story that suggested that walking to the store produced more atmospheric carbon than driving there (I don’t know if the researcher accounted for the driver’s respiration in the calculations).  If there is anything to that research then the taxing the output only for the vehicle emissions and not the respiratory emissions seems to turn the ostensible purpose of the tax on its head.

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Posted: 24 September 2008 11:10 AM   [ Ignore ]   [ # 2 ]
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I’m a little confused. The pigovian tax wouldn’t be doing its job if the government then turned around and used the $30/ton to finance an enormous football stadium. So part of the problem with this tax scheme is that we’d need to mandate that the money from pigovian tax X go to fund cleanup of X.

The other problem is that it may be no simple thing to find out what the pigovian tax on X should be. Are we estimating the damage of X by the amount of present-day funding it would take to clean up X? Then partly this number will depend on how efficient the cleanup systems are. And I expect that that will prove notoriously difficult to estimate in practice.

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Posted: 24 September 2008 11:12 AM   [ Ignore ]   [ # 3 ]
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Bryan - 24 September 2008 11:01 AM

I remember hearing about a story that suggested that walking to the store produced more atmospheric carbon than driving there (I don’t know if the researcher accounted for the driver’s respiration in the calculations).

Apparently it’s not true.

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Posted: 24 September 2008 11:22 AM   [ Ignore ]   [ # 4 ]
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dougsmith - 24 September 2008 11:12 AM
Bryan - 24 September 2008 11:01 AM

I remember hearing about a story that suggested that walking to the store produced more atmospheric carbon than driving there (I don’t know if the researcher accounted for the driver’s respiration in the calculations).

Apparently it’s not true.

Can’t say I’m surprised, though the emphasis on the diet of the subjects leaves the argument plausible in isolated cases.

But there still seems to be a rationale for taxing aerobic exercise.  smile

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Posted: 24 September 2008 11:50 AM   [ Ignore ]   [ # 5 ]
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I have always like the idea of Pigovian taxes, not just for environmental issues but social ones as well! Maybe placing a higher tax level on handguns and ammunition, or maybe a health fund tax for employers that don’t offer a group health plan for their employees.
Or, maybe even a corporate tax for those companies that sell their goods in USA of Canada, but have fired all their North American employees to they can support the regime in China.

Their are allot of social issues that this style of tax can be added to.

In Canada we are having an election and one of the main issues is the Liberal party in Canada who is proposing a Pigovian style environmental tax or a carbon tax. I think that it is worth it, however I have never (and will never) own a car.

Bryan - 24 September 2008 11:01 AM

Do people get taxed for breathing or will there be a constitutional prohibition against taxing personal metabolism?  Perhaps based on the right to privacy?  wink

 

Wow, Bryan how…. Evangelic Christen of you.
I am no scientist but I would image that the internal combusting engine, that is reliant on fusel fuels, would produce allot more Carbon-Monoxide then humans.

I am not sure, but the only place that I recall hearing the “study” that you mentioned, was on the movie “Jesus Camp” and it was a Evangelic father telling his home schooled child that “statistic”.

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Posted: 24 September 2008 11:58 AM   [ Ignore ]   [ # 6 ]
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Amos - 24 September 2008 11:50 AM
Bryan - 24 September 2008 11:01 AM

Do people get taxed for breathing or will there be a constitutional prohibition against taxing personal metabolism?  Perhaps based on the right to privacy?  wink

 

Wow, Bryan how…. Evangelic Christen of you.

You may have been unaware of the concurrent conversation I’m having with Chris (the guy who posted the OP) regarding interpretation of the Constitution.

I am no scientist but I would imag(in)e that the internal combusting engine, that is reliant on fusel fuels, would produce allot more Carbon-Monoxide then humans.

So you’re figuring breathing will be taxed less than driving.

I am not sure, but the only place that I recall hearing the “study” that you mentioned, was on the movie “Jesus Camp” and it was a Evangelic father telling his home schooled child that “statistic”.

I called it a story, not a study.  Your recounting of my post suggests otherwise.

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Posted: 24 September 2008 12:20 PM   [ Ignore ]   [ # 7 ]
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I’m a little confused. The pigovian tax wouldn’t be doing its job if the government then turned around and used the $30/ton to finance an enormous football stadium. So part of the problem with this tax scheme is that we’d need to mandate that the money from pigovian tax X go to fund cleanup of X.

Well, it would serve the purpose of discouraging demand for an environmental insult even if the money were used to build a football stadium. And yes, it would best be applied to mitigating the effects of the pollution. This could be readily done in the locale of a coal-burning power plant; we could throw away all regulatory controls on emissions but add a tax on those emissions based on our determination of the long term health effects of those emissions and the costs of medical treatment and lost years of life. My guess is that, once we figure out the numbers, the power companies would be begging for a return to the good old days of regulations. But this way they’d be bearing the true costs of their activities.

For other problems, however, it would be very difficult to establish justifiably accurate tax rates. Take global warming—how much damage will an additional ton of CO2 in the atmosphere do over the next century? That would certainly be a messy calculation, laden with weak assumptions. But I think we could pass legislation acknowledging the uncertainties while still imposing a tax based on “best available evidence”. We already do this in many other areas of law. We criminalize drunk driving even though drunk driving doesn’t itself kill anybody—people are killed when drivers make mistakes. The justification is that drunk drivers have a higher probability of making mistakes. By accepting the principle of probabilistic damages, we have opened the door to this kind of taxation.

Here’s an extension of the Pigovian tax concept: if we accept the premise that the underlying political reason to invade Iraq lay in the need to maintain stable supplies of oil for the long term, then should not the cost of that invasion be paid by consumers of oil? Let’s see—$2 trillion spread over, say, 20 years, divided by the amount of gasoline we use each day for that period, taking into account that only about half of our oil usage goes into gasoline and only about 75% of the cost of gasoline is for crude oil—I think that comes up to about $0.40 per gallon of “Iraq war” tax for 20 years. I wonder if people would have been so enthusiastic about the war if it were expressed that way. Indeed, what if EVERY military adventure we embarked on had to be paid for in gasoline taxes, just to drive the cost home to taxpayers in a way they could directly appreciate?

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Posted: 24 September 2008 12:23 PM   [ Ignore ]   [ # 8 ]
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Oh, and no, Bryan, a Pigovian tax would be applied at the point of consumption, not on breathing. In this case, the point of consumption would be the beef. There’d be a higher tax on beef than on cereals because beef production generates more CO2.

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Posted: 24 September 2008 12:45 PM   [ Ignore ]   [ # 9 ]
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I merely meant the Evangelic comment to be a joke smile and put the word in “study” because that is the way it was portrayed in the movie not because of what you said (thou on second reading of what I wrote, I can see where my communication lacked)

I do like the Pigovian tax idea, not just for carbon emissions but as a replacement for income tax as a whole.
I feel the idea that people should be responsible for their own society, and be liable for any harm that they cause the people that live in the society, should be regulated by the societies governing body.

As for taxing breathing, I would imagine that environmental taxes would be added to what is controllable in society…e.i.: car emissions, factory emissions, real enforcement for companies that take non to little effort in the area of environmental waist. (breathing isn’t a controllable variable…. unless people breath too much than maybe a tax smile )
All in all, people will do what we can if is is available on the market for us to do. A tax should be there on the consumer, so that the manufacturers will lose sales if another manufacturer comes out with a emissions free, and there for tax free car.
There would have to be allot of regulation on a tax like this, so the money goes to where it is said to go (as Doug was saying). Much like any another like tax.

 


And, no I haven’t been reading any of the interpretation of the Constitution posts. I am still getting versed with my own country being a “Constitutional Monarchy”, and our Canadian Charter of Rights and Freedoms, that I find hard enough to interpret without adding someone ells to the mix and being even more confused.

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Posted: 24 September 2008 02:16 PM   [ Ignore ]   [ # 10 ]
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I think there is some problems with the Idea of Pigovian taxes becuase of who it would effect most. Higher tax on fatty/sugary foods, alcohol and tobacco fuel, and meat would affect the poor who are the main consumer of those products but the rich would largely unaffected.

The next problem would be that the tax code would be complicated and convoluted. There could be thousands of different categories with different taxes making our tax system even more complicated and open to special interests.

Another problem that might come from pigovian taxes is what is considered to have negative social consequences, religious/conservative interpretations might place high taxes on porn, condoms, birth control, and lower taxes on fuel, guns, and meat.

IMO there should be a progressive sales tax with absolutely no loop holes.

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Posted: 24 September 2008 04:25 PM   [ Ignore ]   [ # 11 ]
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I think the concept is worthwhile, but so far, the most pressing need for it hasn’t been discussed.  Consider all the bank executives who have damaged the financial health of our society while reaping huge benefits.  I can see such a tax on their earnings at, say, the 95% level. 

As far as carbon dioxide emissions, as with many other items, we could set a personal exemption level of something like the amount of CO2 generated by a human expending, say, 10,000 calories a day. 

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Posted: 24 September 2008 05:07 PM   [ Ignore ]   [ # 12 ]
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Let’s make sure to clearly differentiate between crime and environmental insult. When we use a regulatory approach, we mix the two together. The slaver is committing a crime. The banker who cheats millions of people is also committing a crime. The proper response to crime is legal; the proper response to environmental insult is economic.

However, I realize that there can be some forms of environmental insult that are still treatable as crime. Something clearly identifiable, egregious, and highly destructive would be better treated as a crime. For example, if we caught an industrial operation deliberately pumping toxins underground where it will eventually reach the water table, we should treat that as a crime and levy a fine equal to the cost of providing safe water by other means for the community.

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