Could a tax on daily nuisances, like talking during movies, really solve revenue gridlock in Washington? A growing number of bipartisan economists seem to think so.
In a piece for the New York Times today, Adam Davidson of Planet Money asks: Should we tax the things that annoy us? Like, say, traffic jams?
Driving home during the holidays, I found myself trapped in the permanent traffic jam on I-95 near Bridgeport, Conn. In the back seat, my son was screaming. All around, drivers had the menaced, lifeless expressions that people get when they see cars lined up to the horizon. It was enough to make me wish for congestion pricing — a tax paid by drivers to enter crowded areas at peak times. After all, it costs drivers about $16 to enter central London during working hours. A few years ago, it nearly caught on in New York. And on that drive home, I would have happily paid whatever it cost to persuade some other drivers that it wasn’t worth it for them to be on the road.
Instead, we all suffered. Each car added an uncharged burden to every other person. In fact, everyone on the road was doing all sorts of harm to society without paying the cost.... Add up all the cars in all the traffic jams across the country, and it’s clear that drivers are costing hundreds of billions of dollars a year that we don’t pay for.
According to Davidson, one way to make up for these burdens would be to tax them. More specifically, to impose what's called a Pigovian tax. Named for the early-20th-century British economist Alfred Pigou, it penalizes the things we do that affect others or place a cost on the rest of society. Common examples of the theory in action are congestion pricing -- effectively a tax on the traffic that drains gas, emits pollution and inconveniences everyone -- and tobacco fees -- which penalize purchasing a substance that can ruin your health or, you know, kill you. You pay for the things that could hurt you or hurt others. It's kind of like a swear jar, writ large.
And in the wake of the tragedies like the mass shooting at Sandy Hook Elementary, there has been more talk than ever about the social cost of gun ownership. Some economists say that a Pigovian tax on weapons, rather than tougher restrictions, could end political gridlock on gun control.
As you might have already guessed, taxing for the social good is a controversial idea. (Just ask Michael Bloomberg.) As Davidson writes:
There are some obvious problems with their approach. Nobody actually knows the precise cost of any negative externality. (Estimates for the collective impact of a ton of carbon range from $1 to $1,500, for instance, which could lead to all kinds of price disagreements on a Pigovian gas tax.) So Mankiw prefers to focus on simpler factors to deduce externalities. It’s not terribly difficult to figure out how many people drive on a certain road per hour and how much time they lose by being stuck in traffic, he told me. Still, he said, “you’ve got to take your best guess.”
It's also hard to know where to stop, and economists haven't been able to offer an objective criteria for deciding what to tax, or by how much. And without clear consensus on what constitutes a social cost, it appears the Pigovian tax utopia might be little more than political pipe dream -- at least for now.