Are Taxes Like Laws Against Murder?

This opinion piece by Robert H. Frank argues for the use of taxes to limit behaviour, like polluting, that causes harm to others.  The editorial tries to make the case that tax law can be used like any other law that regulates things humans do that harm their neighbors. 

It is a simple argument.  We don't want people going around killing people so we have laws against it.  We want orderly use of public streets so we have stop signs, right of way laws and a whole host of other laws to regulate the use of public streets.  Mr. Frank then makes the argument that if we don't want people to pollute we should tax them for polluting.  If polluters don't want to pay the tax then they can stop polluting.

Initially, it sounds like a very simple straight forward thing to do.  But Mr. Frank's first mistake is failing to recognize the tax code is not like laws against bad behavior.  We don't allow people to choose to murder someone if they pay a tax to do it. 

Another clear miss of this opinion piece is there is no mention of how complicated or easily manipulated a system like this could be.  First, I can't imagine Congress getting together long enough to agree to this system let alone figuring out what the right level of taxes should be. 

Second, enforcement of tax law is easily manipulated.  We've seen it before, a tax gets passed and enforcement ramps up.  A new administration comes in that has a negative view of the tax.  Instead of repealing the tax, they quietly order the regulations related to the tax to be weakened and/or that the regulations not be enforced.

I do admit that the use of the tax code to encourage behavior is not a new idea.  Many of us claim mortgage interest deductions.  The Federal Government is encouraging home ownership via a tax deduction.   President Obama's stimulus package contained deductions to encourage businesses to buy new equipment. 

However, there is a difference between tax deductions to encourage behavior and taxes to discourage behavior.  The biggest difference - the law is not broken if someone fails to take a deduction.  As a result enforcement activity is limited. 

If we use the tax system to limit pollution, what will happen when a business does not pay taxes for polluting?  First, the Government will have to prove the business polluted and then prove how much they polluted.  These are issues the EPA struggles with today except under Mr. Frank's scenario we would shift from assessing a fine to assessing a tax.  Mr. Frank fails to discuss if there is any real difference between the two systems.

There may be merit to using taxes to discourage behaviors like polluting, but Mr. Frank's opinion piece gives no clear reason to believe there is.   Mr. Frank's justification for such a system rests on misleading comparisons to laws against murder.   Mr. Frank also fails to discuss the difficulties with implementing and enforcing such a system.  Mr. Frank also does not identify any advantages between the use of the tax code and our current regulatory system.  In short, Mr. Frank fails to make his case.


Centerist Cynic

This was originally posted at my blog



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