Thursday, April 27, 2006

It's almost a good idea

Philosophically minded folks like myself often ask ourselves purely hypothetical questions. One of the perennnial favorites is, "If you could go back in time and kill Hitler, would you?" A more recent, equally absurd hypothetical question is, "If the Republicans proposed something that made sense, would you support it?"

Believe it or not, today presented us with a close call -- or at least the closest facsimile we'll ever see. - Senators to push for $100 gas rebate checks - Apr 27, 2006

I was an econ major in college. And we talked about exactly this kind of thing, though in a context that would make bona fide conservatives blanch.

One of the basic assumptions of of economic theory is that the tax code makes rational actors alter their behavior. We buy less of goods that are taxed more heavily; the assumption underlying the infamous Laffer Curve is that high marginal income tax rates discourage work. (I have always referred to it as the Laugher Curve because it takes that assumption, encourages it to smoke crack, and posits that decreasing tax rates also increases aggregate tax revenue, ad infinitum, until a tax rate approaching zero yields tax revenue approaching infinity.)

How does all that apply here? We have a federal excise tax of 18.4 cents/gallon on gasoline. According to economic theory as understood by Miton Friedman, that tax should reduce consumption. Uncle Miltie thinks that kind of distortion is a bad thing. I think it is an essential and beneficial tool. Countries like Germany, France and Britain have much higher per gallon (liter, actually) taxes, and it is the reason Euros drive small, economical cars, and one of the reasons they have good mass transit.

The idea that is that that tax code can be a form of behavior control. If the government taxes a specific item with a per-unit levy, but offers lump-sum subsidies regardless of whether recipients continue to buy that good, it can size the tax and the subsidy such that there is no net impact on the average rational user.

As I recall, that kind of behavior control used to be seen as liberal social engineering, which the conservative types abhored. But as strange as it might seem, that's exactly what Bill Frist proposed today: leave the gas excise tax in place, but offer a lump sum subsidy to everyone regardless of whether they consume any gasoline at all. If they did this the right way, I would, as a rational actor and follower of politics, be forced to support it.

Lucky for me, though, I am not forced into cuddling up to these unsavory bedfellows. First of all, the budget is so massively out of balance that there can be no justification for ANY broad tax reduction. Second, the string to which it is attached is opening up ANWR to drilling, so in effect Frist wants to bribe us into wanting to help Big Oil in much the same way Big Oil has bribed him. (There's also the fact that going through the massive expense of printing checks, as opposed to simply giving people credit on their annual tax returns, betrays the transparent grandstanding behind their thinking, but that's a minor point.)

Thanks for saving me from having to ever agree with you, schmucks.


Anonymous DrGail said...

Just because Frist and company can be so easily bought, doesn't mean that the rest of us can. I may have been born at night, but it wasn't last night!

1:12 PM  

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