{"id":50,"date":"2019-02-27T20:42:18","date_gmt":"2019-02-28T01:42:18","guid":{"rendered":"https:\/\/drjonathancummings.com\/blog\/?p=50"},"modified":"2019-03-28T15:24:04","modified_gmt":"2019-03-28T19:24:04","slug":"revenue-taxes-and-behavior-taxes","status":"publish","type":"post","link":"https:\/\/drjonathancummings.com\/blog\/ideas\/2019\/02\/revenue-taxes-and-behavior-taxes\/50\/","title":{"rendered":"Revenue Taxes, and Behavior Taxes"},"content":{"rendered":"\n

I just had an idea I thought I’d share. One that maybe the state of Vermont in particular could benefit from at the moment.<\/p>\n\n\n\n

It seems as if Vermont\nlegislators could use an update in their thinking about tax policy, in\nparticular regarding funding road repairs and weatherization projects and addressing\neconomic and environmental costs associated with driving and home heating.<\/p>\n\n\n\n

On February 27th<\/sup>\na WCAX report<\/a> noted that the state of VT\nwants to add a tax on electric vehicles because the state is bringing in about\n2\/3 of the revenue it needs for infrastructure because residents used 45\nmillion gallons less gas in 2018 than in 2005. It shouldn\u2019t be a problem that\nresidents used 45 million gallons less gas. It\u2019s a solution that residents used\n45 million gallons less gas. The Vermont government should be celebrating this\nand trumpeting the lives saved. It shouldn\u2019t be the responsibility of those\nindividuals who most contributed to this solution to fix the government\u2019s\nbudget short-fall. Which brings me to my view of this problem.<\/p>\n\n\n\n

Then on March 27th<\/sup>\na VPR\nreport<\/a> noted that the VT house approved a tax increase on home heating oil,\nto obtain funds for weatherization funding. \nThere was criticism that this would \u201cdrive up the cost of living for the\npeople who can least afford it.\u201d So how can the state raise funds for\nweatherization, create economic incentives that match policy aims, and avoid\nregressive cost of living increases?<\/p>\n\n\n\n

Problem<\/u><\/p>\n\n\n\n

How can governments\nbest structure taxes that are consistent with their budget and their policy\naims?<\/p>\n\n\n\n

Objectives<\/u><\/p>\n\n\n\n

Presumably the state\nof Vermont, or any governmental entity, has three primary objectives when they\ndevelop economic policy via taxation.<\/p>\n\n\n\n

  1. Minimize market\nfailures:  create economic incentives to\navoid cost that are not monetized and accounted for in the current market structure<\/li>
  2. Achieve government\nrevenues consistent with government budgets: raise the funds to support the\nactivities of the government<\/li>
  3. Minimize perverse\nincentives:  Avoid creating additional market\nfailures or restricting the markets in a manner inconsistent with the degree of\nprogressive economic and tax policy desired by society as expressed through its\nrepresentatives.<\/li><\/ol>\n\n\n\n

    Comment on 1.\nPresumably the reason that a gas tax was levied is not that a gas tax is the\neasiest way to generate revenue. Or even if it was easy, it was likely easy\nbecause it was also seen as an appropriate behavior tax on those using the\ninfrastructure the revenue would go towards. \nIn other words, my conclusion is that the gas tax was intended to\nrectify the market failures inherent in the cost of gas. That is, to compensate\nfor the externalities of driving and gas prices by adding a cost to account for\nthose market failures. This is all a way of saying it seems that governments often\ninstitute taxes to change behavior, and as a way to make prices reflect aspects\nof the human and social economy that the market does not otherwise price.<\/p>\n\n\n\n

    Comment on 3. The\nstatus quo alternative of a gas tax, or a heating oil tax, creates a perverse\nincentive for the government.  Rather\nthan having an interest in further reductions in gasoline and heating oil\npurchases, the government now has an interest in maintaining the market failure\nto achieve its revenue needs.  The\ngovernment loses revenue if the increase in the cost of gasoline or heating oil\nresults in the expected changes to the economy.<\/p>\n\n\n\n

    Alternatives<\/u><\/p>\n\n\n\n

    • Status quo \u2013 a single tax at the point of the market failure as both a market driver and a source of revenue<\/li>
    • The idea: governments utilize two forms of taxes, behavior taxes and revenue taxes.
      • Behavior taxes:\u00a0 All taxes aimed at addressing market failures are made revenue neutral. Revenues from these taxes are redistributed to the public in the form of a dividend.<\/li><\/ul>
        • Revenue taxes:\u00a0 All taxes aimed at bringing in government revenue are as economically neutral as possible. Seemingly these are typically income taxes or sales taxes.\u00a0 I don\u2019t know enough about tax policy\u2019s economic impacts to know what the most neutral form would be, and it is likely impossible to be fully neutral, but some are better than others certainly.<\/li><\/ul><\/li><\/ul>\n\n\n\n

          Trade-offs<\/u><\/p>\n\n\n\n

          There is clearly a long-term\ntrade-off between minimizing market failures and achieving revenue. That is,\nthe more successful a tax is at minimizing a market failure the less revenue it\nwill achieve. Therefore, the best performing tax structure needs to find a\nwin-win solution to this trade-off. While a single tax is unlikely to do so, I\nthink a combination of two or more tax structures may.  Using both a behavior tax that is revenue\nneutral and a separate revenue tax could decouple the relationship between\nusing taxes as a tool to address market failings and government revenue.  Use the behavior tax if the objective is to fix\na market failure and avoid the externalities caused by the undesirable\nbehaviors resulting from the market failure. \nUse a revenue tax to raise funds.<\/p>\n","protected":false},"excerpt":{"rendered":"

          I just had an idea I thought I’d share. One that maybe the state of Vermont in particular could benefit from at the moment. It seems as if Vermont legislators could use an update in their thinking about tax policy, in particular regarding funding road repairs and weatherization projects and addressing economic and environmental costs […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[6,7],"tags":[11,10,8,9],"class_list":["post-50","post","type-post","status-publish","format-standard","hentry","category-ideas","category-policy","tag-electric-vehicles","tag-gas-tax","tag-taxes","tag-vermont"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/paJPuX-O","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/posts\/50","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/comments?post=50"}],"version-history":[{"count":3,"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/posts\/50\/revisions"}],"predecessor-version":[{"id":104,"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/posts\/50\/revisions\/104"}],"wp:attachment":[{"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/media?parent=50"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/categories?post=50"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/drjonathancummings.com\/blog\/wp-json\/wp\/v2\/tags?post=50"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}