Battlepanda: Stop taxing work, start taxing gas-guzzling


Always trying to figure things out with the minimum of bullshit and the maximum of belligerence.

Tuesday, September 19, 2006

Stop taxing work, start taxing gas-guzzling

I'm a big fan of revenue neutral measures. Let's face it -- the budget is a great big hulking many-headed beast. It's no shame to admit that one's liable to be confused by it. In isolation, many, if not all of the well-intentioned spending measures sounds good. Who can be against more education or more museums or subsidized kibbles for diadvantaged hamsters (OK, I made the last one up)? Yet on the other hand, every single tax increase sounds bad. How can you put more pressure on working families? Or young people? Even the estate tax is decried by many, because of the terrible burden it places on rich, dead, people.

Revenue neutral proposals allow us to cut through a lot of the noise and confusion by holding one variable (the revenue) constant. It's a modest tool -- it doesn't seek to find the optimal solution. It just allows people to compare two paths in a somewhat apples to apples manner.

Al Gore, it seems,
have come up with a doozy of a revenue-neutral measure: Abolish the payroll tax, and replace the lost income with a carbon tax in a revenue-neutral manner. Audacious, yes. But also smart and I think sellable, if it can be shown that the average working family comes out ahead in this exchange. Let's not be afraid of bold measures. If we manage to get this proposal through it will be a win-win-win situation for the liberals. First, this measure will do what no amount of switchgrass and hydrogen initiative will do -- it will drive the demand for petrochemicals down in this country tremendously by tying it so strongly to how much cash the consumers will have in his back pocket at the end of the day; secondly, it gets rid of the rather regressive payroll tax; and lastly, it will break the specious connection between Social Security and the payroll tax. No other government program is expected to "pay for itself" or can be declared "bankrupt" in isolation.

The eagle-eyed among you are probably already tapping out a scathing comment as you read this, so let me assure you that I am well-aware of the irony -- that social security itself was sold to the public with a revenue-neutral proposal. That is, a new tax (the payroll tax) will be created to pay for this new expense in a way that leaves the rest of the budget unaffected. However, that was more than 70 years ago. Since then, the Social Security act have proven its worth over and over again. It's a rock to lean on in our old age that Americans count upon. And it won't ever go away unless we decide to stop paying for it -- how we choose to pay for it now, be it the payroll tax, carbon tax, out of the general fund, is completely irrelevant.

So yeah, revenue neutrality: great way of deciding whether or not to try something new. However, it need not leave a network of "if...then" relationships in its wake in the budget. For instance, Ezra worries that the proposal if put into action would work too well and carbon use will drop to such an extent that the economy is caused to contract too much. That sounds to me like one of those diet ads on TV that warns you about not trying XXX if you're just trying to lose a few vanity pounds because it might work too well!. If I turn the volume knob up too high on my sound system, I dial it back. Similarly, if the carbon tax is doing too good a job of reducing carbon usage, it's not an admission of failure to dial it back partially. This, of course, would leave a hole in the budget. How to fill it? Of course we can always bring back the payroll tax to some extent to fill the hole. But there is no reason why we have to do it this way -- there's no actual reciproical relationship created between the two taxes. It's like if I decide to get a bag of cherimoyas at the grocery store to try instead of my usual bag of apples. However, if I then decided that I both love the tropical flavor of the cherimoya and the satisfying crispness of the apple, then I can buy both fruits at the grocery store next week. Forgoing a magazine or a glass of wine can cover the expense just as well, if I decided that I'm just that much of a fruit lover.