Should the Government Tax Stupidity?

Stupid question - of course they should. Then they would never be short on tax revenue . . . and they could offer free universal health care, free college educations for any who aren't stupid . . . the list could go on for weeks.

Okay, seriously, this article is from Forbes, so it's bound to have a negative spin, and it's the obvious one: such pigovian taxes leave the decision as to what should be taxed up to our oh-so-competent elected officials.  If you read Forbes, there is probably not a single tax you are okay with, unless it only impacts the poor.

But, based on the current display of compassion in Congress, all of the taxes would be targeted at poor people and exclude the wealthy.

In AZ, where we had added a tax to cigarettes to fund health costs and a state lottery to fund education, the state legislature in their great wisdom have appropriated (or trying to) those revenues into the general fund, which is more than likely a violation of the law (redirecting voter approved funding requires voter approval).

Should the Government Tax Stupidity?

Daniel Freedman, Contributor

“A tax on stupidity” is how a former colleague of mine (who typically opposed most forms of taxation) liked to describe, and justify, revenue raised by governments through lotteries. A somewhat similar type of taxation, but with a less offensive rationale (and name), are Pigovian taxes.

They target behavior that harms others (or as economists put it: produce negative externalities) to both discourage it and raise money to rectify the damage caused / compensate those affected. (Pigovian taxes are different from fees, which charge for upkeep costs and are not concerned with reducing use.)

Taxes on alcohol (to counter social and health costs such as public drunkenness and liver damage), on cigarettes (to pay for health costs), and congestion charging for drivers (to reduce pollution and traffic) are classic examples of Pigovian taxes.

It’s easy to suggest potential Pigovian taxes that could find popular support – some serious, some less so. My favorites include taxing dog food (to compensate for headaches caused by barking and the mess left on sidewalks), chewing gum (just look at the sidewalks) and anything exclusively used by celebrities (to compensate for the closed roads, screaming fans, and other problems caused when they visit town).

A celebrity tax?

Pigovian taxes get their name from Arthur Cecil Pigou (pronounced: PIG-oo), a 20th century British economist, and they have a vocal group of U.S. supporters, including Greg Mankiw, a Harvard University professor and former Chairman of President George W. Bush’s Council of Economic Advisers. His “Pigou Club” lists a diverse bunch of supporters, including economists Gary Becker and Tyler Cowen, New York Times columnists Thomas Friedman and Paul Krugman, and former Vice-President Al Gore.

The group supports using Pigovian taxes to discourage carbon dioxide emissions – because, the argument runs, it contributes to climate change (and therefore harms society). They would tax pollution-causing activities such as driving and flying, thereby creating a disincentive to use those methods of travel and raising money to counter the environmental damage.

A problem with Pigovian taxes is that they rely on politicians to divine what needs to be taxed, and at what rate. Looking at the state of today’s economy, however – which is after politicians tried to fix things – hardly inspires faith in our lawmakers’ abilities. Pigou himself recognized this weakness, admitting in his 1954 essay Some Aspects of the Welfare State, that “it must be confessed, however, that we seldom know enough to decide in what fields and to what extent” to interfere – a problem that has long haunted social planners.

 Read the whole article.