Guest Post by Willis Eschenbach
I hope against hope that this is my last post on this lunacy. I started by foolishly saying I would write about the benefits, costs, and outcomes of the BC carbon-based energy tax, so I was stuck with doing it. I discussed the possible benefits of the tax in “British Columbia, British Utopia“. To recap the bidding from that post, I showed that if we assume 1) that the BC folks could hold their CO2 emissions steady, with absolutely no increase for 50 years, and 2) that CO2 is the secret control knob that regulates planetary temperature, and 3) climate sensitivity of the secret CO2 control knob is not less than 3°C per doubling of CO2 … assuming all of those things, they’d achieve a 0.003°C reduction in temperature in half a century. Anything less than 100% on any of those, of course, means less than three thousandths of a degree savings.
I followed that with an analysis of the pre-tax and post-tax changes in the motor fuel sales in BC called “Fuel On The Highway In British Pre-Columbia“. Curiously, both total and per-capita road fuel (diesel plus gasoline) have increased since the tax was passed.
Next, I discussed how people are avoiding taxes by legally buying fuel in the Evil Carbon Empire, the USA, in a post called “The Real Canadian Hockeystick.” That just leaves the costs, and that means that once I finish this post I can go back to indulging in real science, or alcohol, or anything but carbon-based energy tax. So here are some of the important costs to individuals, to businesses, to the economy, and to society in general.
The first cost to me in this is the cost to common sense. Making energy more expensive is going in exactly the wrong direction. Forcing people to pay more for energy makes no sense at all. I want to see energy get CHEAPER, not more expensive. I cannot put this too strongly:
Cheap energy is the salvation of the poor farmer, the poor housewife, and the poor in general all over the planet. It is also literally and figuratively the driving force of a developing economy.
This means that anyone advocating policies that add to the price of energy is actively harming the poor, the farmer, the housewife, and the economy. In addition, those advocating increasing the price of energy are slowing economic development in the parts of the planet that need it most.
I don’t care if you say you’re averting rumored harm to the farmer and the poor in fifty years. That does not justify harming the poor today. That’s the biggest cost of the BC energy tax—it increases the price of energy, the very lifeblood of society, hitting the poor the hardest. That, to me, is the height of cruel lunacy and thoughtless destruction. The first and most important cost of the BC carbon tax is the cost to the poor, to the disadvantaged, and to the economy.
The second cost involves the concept of a “revenue neutral” tax. Here’s the official BC government explanation of the revenue neutrality of the BC tax:
The carbon tax is revenue neutral, meaning every dollar generated by the tax is returned to British Columbians through reductions in other taxes. Tax cut measures include income tax credits for low income individuals, cutting the first two personal income tax rates by 5 per cent, providing northern and rural homeowners a benefit of up to $200 annually, and reducing the business taxes.
Clearly, they’ve made an attempt to return the money fairly by apportioning it among businesses, individuals, northern and rural homeowners, low income people, and the like, so each group gets back roughly what they’ve paid to keep the revenue neutral. To understand the problem with this, let me try to disambiguate two concepts—“revenue neutral” taxes, and “sin” taxes.
“Revenue neutral” means you are swapping out a tax on one thing for a tax on another thing, and doing it in such a way that the tax burden stays the same. In other words, the burden of the new tax is offset by reductions in other taxes.
Of course, ideally, a perfectly “revenue neutral” tax would not change any individual’s taxes. Under a perfectly revenue neutral tax change, if you used to pay a tax on A, you would pay the exact same amount now but with the tax assessed on B. In the BC case, for example, where you used to pay a tax on income, instead you’d pay the same amount of tax on energy, based on its carbon content.
Of course, there’s a million practical problems with achieving such a perfectly equitable revenue neutrality, and I’ll get to them. But for now, let’s agree that a theoretically perfect revenue neutral tax would ensure that in the changeover, nobody gained and nobody lost. For every single person, the tax you used to pay on A you’d now pay on B. All of the money paid to the government goes back to the public. Nobody gains, nobody loses, fair and equitable, no increase in anyone’s tax burden, it’s just that the tax is assessed on something else, that’s perfect revenue neutrality… hold on to that thought.
Next on the agenda is the “sin tax”. This is a tax intended to discourage behavior. Take a tax on tobacco as an example, it’s known to decrease the rates of smoking. Why? Because smokers are the losers, it costs them money out-of-pocket. Typically, the funds raised by sin taxes on e.g. tobacco are used on anti-smoking campaigns, or programs to help people quit smoking, that kind of thing.
Now to the puzzler. Consider a hybrid tax, a “revenue-neutral sin tax” like the BC carbon-based energy tax. The problem with such a tax is that if it is perfectly revenue neutral, there’s little incentive to change behavior. By that, I mean, it’s no good to impose a $200 tax on gasoline and then hand the guy $200—he’ll just go spend the $200 on gasoline. So paradoxically, the more just and equitable the revenue-neutral sin tax is, the less it will affect behavior. In other words, in order for a revenue-neutral sin tax to be effective, it needs to be unfair …
In a perfect revenue neutral world there are no gainers and no losers, but you need people to lose so they’ll change their behavior … so you have to make it “not-very-revenue-neutral” to make it work.
The third cost is one of fairness, and this one has huge ramifications. Children I know all over the world have a clear sense of what’s not fair. Despite being revenue-neutral, which the BC plan demonstrably is, the plan is far from fair. By that, I mean that for far too many people, they are either spending more than they are getting back, or less than they are getting back. People look at that, and they don’t like it one bit.
My experience is that most folks don’t mind an equitably shared burden. I pay my California sales tax, 7.5% on most everything, without protest or resentment. I don’t like how some of that is spent, but it’s taxes, everyone pays the same.
But if I knew that three of my neighbors paid no sales tax on anything that they buy, and I was being charged not 7.5% but 15%, it would angrify my blood mightily, I’d resent it hugely. And that’s the BC situation.
One of the ramifications of this is that perceived unfairness greatly encourages people to cheat, in whatever way that they can. If people feel (correctly or not) that the government is screwing them, they’ll be happy to try to screw the government. This is not good for the rule of law.
The fourth cost is the cost to the poor. I give them their own category because the poor are hit the hardest by rising energy costs. Now, the BC plan does at least attempt to address this real issue, through something called the “Low Income Climate Action Tax Credit”, or LICATC … and this provides another example of why “revenue neutral” isn’t. Here are the requirements for eligibility for the LICATC:
You’re eligible to claim the credit if you’re a resident of B.C. and you:
• are 19 years of age or older, or
• have a spouse or common-law partner, or
• are a parent who resides with your child.
Only one person can apply for the credit on behalf of the family.
In other words, if you’re a young BC resident who (like I did when I was young) is living on his own and working at a job at 17, you’re out of luck. If I’d been living in BC, I’d have been paying energy tax and getting nothing back for two long years.
After the two years of paying energy tax, once I turned 19 and was eligible, I could get $115.50 from the BC Government from the LICATC. Now, there’s lots of jobs for which you have to drive a distance. I commuted 45 miles each way for a couple years when I was younger. Someone doing that with an old car, say 15 miles per gallon, might burn six gallons per work day. Two hundred work days in a year, 1,200 gallons. The BC tax is about twenty-five cents per gallon, that’s $300 in taxes I’m paying … and the LICATC gives me $115.50. Once again the poor get the short end of the stick. David Suzuki doesn’t care how much his gas costs, heck, for all I know free gas is just one of the services provided by his adoring female devotees, and he’s got lots of slack in his budget … but the poor have no devotees, and no slack in their budget at all.
The fifth cost is the tax on the tax. Of course, the Government of Canada gets to charge the Goods and Service Tax (GST) on all transactions … including the carbon tax. So while BC doesn’t keep any of the tax money, Ottawa is extracting thirty million bucks per year from British Columbians, charging them money for the privilege of being taxed on their carbon-based energy use …
The sixth cost is the overhead. You can’t run a complex program like a carbon-based energy tax without lots of paper pushers. And when you have paper pushers you need representatives of the porkoisie to supervise them and keep them from being fired. You need people to write the regulations. You need people to interpret the regulations. You need people to make the regulations more complex. You need people to count every molecule of CO2, and I’m telling you, even on a molecular scale those buggers are tiny. You need carbon cops to enforce the tax, and courts to punish people who are guilty of tax evasion. You need people to explain the complex regulations and forms to the poor bastards that have to fill them out. You need cheerleaders to write endlessly optimistic speeches about how well things are going. The list goes on for a while more, and no part of it is cheap, it’s government work …
The seventh cost is the pensions. Every person taking your tax money today and faithfully giving it back to you tomorrow in blessed revenue neutrality will be taking your tax money for thirty years after they retire and not giving back a dime.
The eighth cost is the rent-seekers. These include folks like Sustainable Canada and other organizations for whom this is a grant-raising bonanza. Then there are a host of lawyers, advisers, accountants, consultants, and the rest of the good folk who make their living out of the hysteria surrounding the alarmism and the complexities of the regulations. They produce nothing useful, they are a dead weight on society, but they come right along with the tax, they mate for life.
The ninth cost is the cost of tax avoidance/evasion. I used to work as an income tax preparer. There’s a distinction between tax avoidance (which is legal) and tax evasion (which is not legal). Seems like a bright-line definition … until you find out that in the US, if you adopt a business policy purely to avoid a tax, the IRS says that is illegal tax evasion.
But under any definition there are several costs in this arena of what might be called creative responses to the BC tax. At a simple level, the cost is the money hemorrhaging out of BC into the pockets of American and Albertan gas stations for gasoline. But it’s much worse than that.
Next level up, many staples are much cheaper in the US. So when BC residents come across the line to fill up on cheap gas, hey, might as well buy milk and cheerios and flashlight batteries and all the things that are 30%, 50% cheaper across the border. This is no help to the BC economy at all, quite the opposite.
Next level up, since the tax there has been an increase of 4 million additional vehicle trips across the border per year. This is a huge cost in waste of gas, time, vehicles, and human energy.
Plus I read that there’s now a side industry putting concealed fuel tanks on trucks so that they can haul an extra fifty gallons or so of fuel across on every trip … wouldn’t surprise me.
Finally, in the most general sense there’s a cost to society when you encourage people to be scofflaws. Unpopular taxes which were perceived by the common citizen as being unfair caused a bit of trouble in Boston, as I recall …
The tenth cost is the hours people will spend filling out the paperwork. For example, the poor people, the people at the margin, the people sleeping in their cars or under the bridges, or with their aunties, can get a check from the government for the Low Income Climate whatever Credit, and they merely have to do the following (emphasis mine):
Claiming the Credit
You or your spouse or common-law partner can apply for the low income climate action tax credit when you file your T1 Income Tax Return with the CRA. On page 1 of your return, check the “Yes” box in the GST/HST credit application area.
If you have a spouse or common-law partner, be sure to complete the information concerning your spouse or common-law partner in the Identification area on page 1. Include his or her net income, even if it is zero. Enter his or her social insurance number if it is not on your personal label or if you are not attaching a label.
To receive the credit for your children under the age of 18, they must be registered for the Canada Child Tax Benefit (CCTB). If your children are not registered for the CCTB, complete the Canada Child Benefits Application form (RC66). You can also request the CCTB form by calling the CRA at 1-800-959-2221.
Riiight … grandma who can’t speak, read, or write English will be all over that one, as will the young guy living in his car and paying the BC energy tax while looking for work …
The eleventh cost is official hypocrisy. One surprising thing I found out in researching this is that the good burghers of BC have fields containing evil natural gas … and even more coal. They don’t use much gas or coal themselves, in part because they have plenty of hydroelectric power. So although they personally dislike those nasty black fossils, they are all too happy to make a living selling them … the industry paid $1.3 billion for the use of the resources, and spent $6.7 billion on exploration and development. Total value of the fossil fuels exported from BC in 2010 was nearly ten billion dollars, about a quarter of their total exports. And to my surprise, seven billion dollars of that was from exporting coal. Big coal bucks, in other words.
So the BC folks are not too proud to take stacks of evil coal money, and thus be totally complicit in the extraction and use of fossil fuels, because as long as other people burn the fuels they can wash their hands and feel all pure … dang, you know this public expiation of BC carbon guilt is starting to make more sense.
What I hadn’t realized was that behind the facade of forest green, BC is a big-time coal baron. Funny how sometimes it takes me so long to finally wake up to some important part of the puzzle … in any case, of course they need to rid themselves of that secret shame, so it’s no wonder this particular carbon-taxing scheme could be sold there. They can get rid of their guilt that way.
And here’s the sting in the end of that tale. Any evil fossil fuel produced in BC which is sold outside of BC pays no carbon tax at all! So the big gas and big coal companies, which are producing gas and coal responsible for billions of tons of CO2, are exempt from the BC carbon tax. How ironic is that? The citizens pay the carbon tax, and the coal companies don’t … I never cease to be amazed at the strange contortions of these energy-taxing fools …
The twelfth cost is officials denying inconvenient reality. The so-called “fugitive emissions” (meaning leaks) of methane are a big issue with the radical left who would like to end fracking (and civilization as well, apparently). This has led to the curiously entertaining spectacle of the BC carbon-based energy tax taking “friendly fire” from DeSmog Canada for not accounting for the reality of these methane gas leaks in the greenhouse gas inventory. Gotta love the spectacle of green-on-green violence, not to mention the schadenfreude of watching the BC energy tax being bombarded from the left for a change …
In addition to that unaccounted raft of emissions from natural gas, you need to add in the emissions from all of the fuel bought in Alberta and the US. The official accounting denies the reality of both of those emission sources in the calculations of the effects of the tax …
You know, there are probably more costs from this crazy BC energy tax, but it’s late, and I’ve had it with BC’s attacks on the poor. Those financial and social costs and injustices would be enough to scuttle a plan which actually had some benefits … and since the benefits in this case are meaninglessly small, in a sane world it would have sunk without notice the year before it was implemented. And yet here we are, and the bureaucrats involved are already counting their fat pension checks …
In closing, let me offer up without comment my search of the official BC Government website:
Best regards to all, I’m going to go look at some numbers and do some programming in R and rest my mind …
w.
NOTE: This is one of a four-part series on the BC carbon-based energy tax. The parts are:
British Columbia, British Utopia
Fuel on the Highway in British Pre-Columbia
Why Revenue Neutral Isn’t, and Other Costs of the BC Tax
Discover more from Watts Up With That?
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TO TIM theTOOLMAN:
I just picked up a hitchhiker this morning; a man in his mid-twenties. He said the motor in his car blew up. He had only bought it a month ago, and he had to take out a loan to buy it. It was a 2004 Subaru. Great gas mileage, but it cost him $11,000 ! You call that affordable ??? The guy has no other debt or financial obligations so he could afford the loan; its a shame he got a lemon.
The point is : if you think most people have thousands to spend on a reasonably young and fuel “efficient” automobile, you’re in wonderland ! The guy who but the Lincoln for $700 is a whole lot smarter !
Cheers
Russ R. says:
July 15, 2013 at 8:44 am
Thanks, Russ. For optional stuff, “widgets”, you are likely right. But people have to buy what they need. For poor people, that’s gas to get to work. If you fine a poor guy $200 for using gas to gt to work and then hand him $200, he’ll likely put it into his gas tank because he has to get to work.
w.
“Another aspect of this tax is school boards have to pay for that tax when they heat their schools. The added expense has forced those school boards to cut programs.”
And hospitals. If you want a real scam, look up the infamous “Pacific Carbon Trust”
http://www.pacificcarbontrust.com/
Their tag line is “Growing the Green Economy in BC”
’nuff said about that level of stupidity.
That sound you hear is $$$$$Big Bucks being flushed down the Great Greenie Gaia Crapper.
Such a waste of taxpayer funds that could be paying for public healthcare, education, infrastructure etc.
Peak Oil is finally here. Abandon your cars all ye who enter the US. The end is nigh – again. It’s worse than we thought. 🙂
BC has been losing manufacturing and other higher paying industry jobs
for over twenty years . The carbon tax is one more reason to not locate a business
in BC. .Alberta and Washington are huge beneficiaries of the BC government tax and
all they had to do was sit back while the BC Liberals sold BC down the river .
Not everyone can get a job for life at Simon Fraser University where this thing
hatched and promoted.
David Suzuki most certainly doesn’t care how much he has to pay for anything. Everything he does and says publicly is self-serving, done in the name of the environment but of virtually no positive environmental consequences and always just all about David Suzuki. Most certainly he doesn’t care if he hurts poor people or not.
Funny thing though. He just made the Immigration Minister of a very skeptical Conservative government that concentrates on tightening the immigration laws in Canada look very liberal thus gleaning a half a million or so new votes from the recent immigrant population. He told a French publication that all immigration to Canada should be shut down because Canada is full, the immigration policy is disgusting and allowing immigration to help build the economy is crazy. Guess he’s one of those Canadians who can’t read French , thinks the rest of us can’t and that Google translator doesn’t work in Canada.
Prince George BC 2012 carbon tax cost;
$114.00 for natural gas
$ 358.00 for Gasoline
Government’s generous return was $133.00
City taxes increased over 3 % a year since implementation.
Garbage collection increased $73.00
Snow removal is now $145.00
Offsets for Pacific carbon trust for School district 57 $164000.00
For Northern Health $578156.00
This does not include the cost of food and other products that require transportation.
My cost for grocery items has increased $244.00 per month since 2008. A small increase in the tax has a huge ripple effect on the cost of goods.
Clearly the real cost of this stupid tax was never considered.
I wont get into the waste of hundreds of thousands of dollars on upgrading the school heating systems then closing the schools. Or the heating upgrades in schools that are in need of major renovations. This insanity just keeps going on and on.
Shouldn’t Whistler get a a tax refund?
http://www.flyertalk.com/forum/17840119-post4.html
Excellent, Willis – but the point can be made very simply: no tax can ever be “revenue neutral,” because even if the tax is 100 percent refunded to payers, there is still the cost of administering it,, which will come out of the taxpayers’ hide somewhere.
Somehow we need to get the word out to all those low-income people who have been voting Kleptocrat about how they are being screwed by the Kleptocrat Party’s and der Fuehrer’s energy policies (among other things).
“I hope against hope that this is my last post on this lunacy. I started by foolishly saying I would write about the benefits, costs, and outcomes of the BC carbon-based energy tax, so I was stuck with doing it.”
For what it’s worth, Willis, I think this series is some of your best work, perhaps exceeded only by the Steel Greenhouse. The comment threads, too, are gold mines of information. Thanks for taking the time.
“Thanks, Russ. For optional stuff, “widgets”, you are likely right. But people have to buy what they need. For poor people, that’s gas to get to work. If you fine a poor guy $200 for using gas to gt to work and then hand him $200, he’ll likely put it into his gas tank because he has to get to work.”
Agree, the impact of a gasoline tax boils down to elasticity…. how sensitive consumption is to changes in price. Your example of the poor guy spending $200 to get to work, while a realistic example of an individual with highly inelastic gasoline demand, isn’t representative of the entire population, and therefore is not a good model for how total gasoline demand would respond to price changes.
Fortunately, this might be one of the most heavily researched areas of economics due to 1) the availability of price and consumption data, and 2) the obvious policy implications relating to fuel taxes.
Rather than summarize the research myself, I’ll just quote an actual economist:
http://economics.about.com/od/priceelasticityofdemand/a/gasoline_elast.htm
“It turns out that there are a lot of studies which calculate what the price elasticity of demand is. There seems to be at least 100. Fortunately there are two good meta-analyses which examine the work of many different studies on the matter.
One such study is Explaining the variation in elasticity estimates of gasoline demand in the United States: A meta-analysis by Molly Espey, published in Energy Journal. Espey examined 101 different studies and found that in the short-run (defined as 1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%. In the long-run (defined as longer than 1 year), the price elasticity of demand is -0.58; a 10% hike in gasoline causes quantity demanded to decline by 5.8% in the long run.
Another terrific meta-analysis was conducted by Phil Goodwin, Joyce Dargay and Mark Hanly and given the title Review of Income and Price Elasticities in the Demand for Road Traffic. If you’re interested in the subject, it’s an absolute must-read. They summarize their findings on the price-elasticity of demand of gasoline as follows:
If the real price of fuel goes, and stays, up by 10%, the result is a dynamic process of adjustment such that:
a) The volume of traffic will go down by roundly 1% within about a year, building up to a reduction of about 3% in the longer run (about five years or so).
b) The volume of fuel consumed will go down by about 2.5% within a year, building up to a reduction of over 6% in the longer run.
The reason why fuel consumed goes down by more than the volume of traffic, is probably because price increases trigger more efficient use of fuel (by a combination of technical improvements to vehicles, more fuel conserving driving styles, and driving in easier traffic conditions). So further consequences of the same price increase are:
c) Efficiency of use of fuel goes up by about 1.5% within a year, and around 4% in the longer run.
d) The total number of vehicles owned goes down by less than 1% in the short run, and 2.5% in the longer run.
It’s important to note that the realized elasticities depend on factors such as the timeframe and locations that the study covers – the realized drop in quantity demanded in the short run from a 10% rise in fuel costs may be greater or lower than 2.5%. Goodwin et. al. find that in the short-run the price elasticity of demand is -0.25, with a standard deviation of 0.15, while the long rise price elasticity of -0.64 has a standard deviation of -0.44.
While we cannot say with absolutely certainty what the magnitude a rise in gas taxes will have on quantity demanded, we can be reasonbly assured that a rise in gas taxes, all else being equal, will cause consumption to decrease.”
You might enjoy this recent paper as it specifically studies California: http://www.yale.edu/gillingham/Gillingham_IdentifyingElasticityDriving.pdf
Anyway, this doesn’t detract from the rest of your argument. I’m in agreement with you that carbon taxes such as the one enacted in BC tend to be inefficient at best and can be seriously harmful at worst.
That said, the I’d still prefer a simpler carbon tax (or any broad consumption tax) to an income tax as it would be less economically distorting, but that’s an argument for another day.
Another good piece, Willis! One of my Canadian cousins lives just three miles from the border crossing at Blaine, Washington, and she never buys gasoline in British Columbia. She drives her car, her husband’s car and their son’s car to Blaine to fill up. When I drove up to 100 Mile House, B.C. four years ago for a family reunion, I filled up a few hundred yards before the border crossing and I bought as little gasoline as I could get by with, and crossing back into Washington State with barely more than fumes in the tank.
Russ R. says:
July 15, 2013 at 11:16 am
You are right. However, it is an excellent model for how the poor guy gets screwed by the policies you are advocating.
Fascinating but immaterial. We both agree that if you tax something, people use less of it … your re-proving that doesn’t help.
NO, NO, NO!! All taxes are NOT created equal. When people talk about a carbon tax, that’s code for an energy tax, but they don’t want to be honest about it. You are advocating raising the price of energy, and as a result you are advocating actively harming the poor, the farmer, the housewife, the environment, and the economy.
How you twist that in your mind to make it a path you’d prefer over an income tax escapes me.
w.
Way back in ’98 I was invited to a friend’s wedding in Seattle. In ’96 federal speed limit control (the despicable 55mph national speed limit) was returned to the states. So Montana returned to its daytime speed limit free formula (although an unstated 100mph limit was likely to be enforced). Montana’s between Chicago and Seattle. So I drove.
Unfortunately I left somewhat late in the day. Driving north through Wisconsin on I 90/94, then I 94, I noticed flattened red rectangular patches, the tip pointing forward, across the lane. Oftentimes the patch was accompanied by progressively smaller patches as if something had skipped along the road. Whatever were these, I thought? Then it dawned on me: My god these were deer hits! They were irregularly spaced, in both lanes, and continuing. And the red color was, well red: they were fairly recent hits. And they were everywhere. It was night out and if one jumped in front of me, well there wasn’t much I could’ve done.
Well, I got to Seattle ok. And it included a glorious 782 mile romp through Montana, accomplished in 9 1/2 hours (including stops). Once I returned home I wondered if there was anything that could possibly be done about avoiding deer hits. Well there is…
Years later, in 2005, I undertook a once in a lifetime drive to Alaska. However, time constraints required I give up the drive from Chicago. Instead we flew to Seattle, rented a car, drove north to catch a BC ferry to Vancouver Island, drove north along the island’s coast to its tip at Port Hardy where we caught another BC ferry to Prince Rupert where we caught an Alaskan Marine Highway ferry to Valdez. From Valdez we drove to Fairbanks and then back to Seattle.
Anyway, about half the highway north to Port Hardy was a four lane divided, controlled access expressway. It serviced the quaint, touristy, waterfront towns on the protected east coast of the island. It would be an understatement to say that it was probably the nicest highway I’d ever driven on: glass smooth concrete, not asphalt; and, wonders, it had a game fence, both sides along its entire length.
Game fences, you see, are the only way to positively guarantee against deer (or other large animal) hits, quite a few of which prove to be fatal to motorists. Game fences are, however, quite expensive, initially, and in maintenance. Which, no doubt, is why I’ve never seen them, before, nor since that drive along Vancouver Island, and certainly not along I 90/94.
Why a game fence along this highway on Vancouver Island in British Columbia? Well, the capital of BC is Victoria to the south of the island. Victoria is quite an appealing place: a grand hotel or two with fine cuisine served on outdoor terraces; oysters on the half shell; fine shopping; art galleries; it’s own Crystal Palace. But, the hardworking public servants may wish for a change of pace, so on the weekends what better way to escape the tedious shopping in genteel old Victoria then to load the 1.8 kids into the family Volvo or Mercedes and zip on up to one of those waterfront towns for a weekend get away. And, along the nicest road the taxpayer can supply to them.
Maybe I’ve been long winded here. But maybe I’ve made my point. Those carbon (oh, how I hate that shortened term)taxes are not for our welfare. So, in the end, they’re not going to be revenue neutral. Because, if more common folk slow down traffic on that east coast highway, the public servants may just need to build some heliports: a little more expensive then game fences.
TimTheTool…Man,
First. People who don’t have a lot of money purchase a vehicle that they can use most of the time. For a family, that means buying something that will carry all of them, and maybe one or two more, which usually means a minivan. Minivans get a premium price in the used car market, but you can get a used full-size SUV or van for really cheap, so around here, you find the poorest families in big SUVs and full-sized vans.
Second. Vehicles that get really good gas mileage sell for premium prices in the used car market. Even a 15-20 year old Sprint/Metro/Swift can sell for over $5,000, if it is in decent (safe and reliable) condition.
Third. Payback time in a few weeks? Do the math — then adjust it to a real-world scenario and do it over.
Four. Poor does not equate to stupid. If they could make it work, they would, but they can’t so they make do with what they have.
“Riiight … grandma who can’t speak, read, or write English will be all over that one, as will the young guy living in his car and paying the BC energy tax while looking for work …”
An important one you missed out on is if you are living under a bridge or in your car (absolutely the poorest) you probably can’t claim a rebate – you can’t claim other tax credits or anything unless you have a bonefide address. So I guess you would also have to illegally pay something to someone with an address to get your cheque.
Another group I didn’t see mentioned that gets screwed by the carbon tax but fortunately can pass it along if the competition allows is contractors. There is no real fuel-efficient substitute for the 1/2 ton pickup truck.
Russ R. says:
July 15, 2013 at 8:44 am
Willis,
“One disagreement. You wrote “By that, I mean, it’s no good to impose a $200 tax on gasoline and then hand the guy $200—he’ll just go spend the $200 on gasoline. So paradoxically, the more just and equitable the revenue-neutral sin tax is, the less it will affect behavior.”
Economically speaking, this isn’t true. Decision making is based on marginal costs, not averages.”
Yeah, Russ, those poor people all have degrees from the London School of Economics, the scallywags.
As a word mechanic, I love “porkoisie.” Excellent. Descriptive and pithy.
“…[T]he global funeral pyre that Adolf Hitler dreamed of but lacked the means to assemble, is now well within reach, and can now be ignited by multiple pathways without any need for a megalomaniac dictator.” –otropogo
As The Godfather demonstrates, society abhors a vacuum. If you build it, he will come. He may already be here.
If your car is also your home as is the case for many out of work poor it is often necessarily large. Often not a car, for that matter, but a van. A beater, certainly, run down, no money for maintenance, if in the midwest then very likely full of salt rot from the highways and and wet grassy lots they have to park on. If the driver/occupant manages to get ahead that van is recycled into another rolling castle for another lost soul.
Willis,
In the USA, the central planning, redistributionist big-brother statists claim these schemes are revenue neutral because the money will be used to fund more government services. Yep, they claim the people get the money back — not as money, of course, but in the form of bigger government.
Russ R. says:
July 15, 2013 at 11:16 am
………….. “That said, the I’d still prefer a simpler carbon tax (or any broad consumption tax) to an income tax as it would be less economically distorting, but that’s an argument for another day.”
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You have given much argument for energy taxes.
Have you considered another option? No tax. Makes life much more simple.
Willis:
“NO, NO, NO!! All taxes are NOT created equal. When people talk about a carbon tax, that’s code for an energy tax, but they don’t want to be honest about it. You are advocating raising the price of energy, and as a result you are advocating actively harming the poor, the farmer, the housewife, the environment, and the economy.
How you twist that in your mind to make it a path you’d prefer over an income tax escapes me.”
I’m happy to call a carbon tax an energy tax and be entirely honest about it. And yes, the burden of an energy tax falls more heavily on the poor. No disagreement there.
I’ve read your previous posts on this subject. I greatly respect your analysis, and I have only minor disagreements with your reasoning. But by looking at the alternatives, I come to a different conclusion than you do (although it’s ultimately immaterial because I end up opposed to the carbon tax for an altogether different reason).
Let’s begin with a simple statement: As North Americans, we overconsume. I’m not talking about in relation to what the planet can sustain… that’s an ecological argument. I’m making an economic argument…. we overconsume relative to what we produce.
Now in the short run, our overconsumption is not necessarily a problem. An individual can consume more than he/she produces for short periods of time… virtually all of us consume significantly more than we produce on weekends. Most individuals are net consumers for the first 2 decades of their lives, and again for most of their senior years. But as much as we might like to, we can’t do it forever. Overconsumption, or living beyond our means, can only be maintained by A) drawing down capital, B) running up debt, or C) living at somebody else’s expense.
As a North American society we’ve been living beyond our means for so long that we’ve long exhausted our capital, we’ve spent the last few decades running up debt, and since we’ve got nobody else who’s willing to fund our overconsumption, we’re handing the bill to our future generations as “unfunded liabilities” simply because they have no say in the matter.
Why do we overconsume? As you wrote: “We both agree that if you tax something, people use less of it “. This applies to labour as well… if you tax employment, people will work less. If you subsidize unemployment, more people will remain unemployed (i.e. we will underproduce). If you tax savings and subsidize consumption (which is being done by inflating the money supply and artificially lowering interest rates), people will consume more today and save less for the future (i.e. we will overconsume). None of this is particularly controversial, so our collective propensity to consume more than we produce should come as no great surprise.
But let’s focus specifically on the income tax. By taxing people more, they work less.
This phenomenon can take the form of retiring earlier, or working fewer hours, or taking more vacation (trading leisure hours for employment income). It can also take the more destructive form of people leaving the country to work somewhere else where taxes are lower. Just like the Canadians who drive across the border to fill up their gas tanks, there are plenty of Canadians who go work abroad to avoid taxes. (Three years ago, I very nearly relocated to the UAE because I would have saved around $100k a year in taxes.) By raising income taxes, a country exports its high-income earners. Worst of all, “working less” can take the form of people evading taxes altogether by working in the underground economy while simultaneously claiming unemployment benefits. (I suggest you visit Canada’s East Coast some time to see just how widespread EI fraud is.)
Not only does the income tax distort behaviour resulting in economic losses, it is extraordinarily inefficient and intrusive. An ideal tax would have zero administration cost… such that every dollar paid by taxpayers would be available as revenue. The income tax is far from that. The compliance costs are astronomical. The IRS has over 100,000 employees, and every firm I know employs people for the sole purpose of navigating the maze of income tax regulations. Countless accountants, lawyers and tax preparers do no productive work whatsoever… 100% of their labour being allocated to compliance activities. Worst of all, the income tax gives the government license to track your personal activities, savings, investments, expenses, and confiscate your property without due process if they’re displeased. Additionally, the income tax code is a tool for politicians to meddle in people’s lives and business affairs, reward their backers and punish anyone they don’t like.
In my opinion (and people can have different opinions on this) the income tax is the most economically destructive form of taxation currently in use. On every measure that you assessed the carbon tax, apply the same evaluation to the income tax, and I expect you’ll find it to be even worse.
In my ideal world, I would fund government through 1) user fees, 2) taxes on land value, and 3) consumption taxes. User fees are the most economically efficient, since the individual paying the fee is the one receiving the benefit. For public goods, (according the strict economic definition) , the land tax is the least intrusive (land doesn’t go underground or leave the country to avoid taxation). And in extreme situations where the first two options are inadequate, leaving short term revenue/spending imbalances (e.g. WWII) consumption taxes would help plug the gap. And I’d argue that today’s accumulated overconsumption gap is an extreme situation in serious need of plugging.
Getting back to overconsumption, there are only two goods that I know of where the seller of those goods spends their advertising budgets imploring their customers to buy LESS of what they’re selling. Those two goods are electric power and municipal water. There is no surer sign that the “market” prices for these goods is too low, encouraging overconsumption.
So, we’re already in a situation where we overconsume energy relative to what we would consume if it was rationally priced by an undistorted market. To the extent that a carbon tax flows through almost every good and service in the economy, it effectively serves as a consumption tax. Since it would impact the poor more than the rich, I’d over-rebate it up to the poverty level, basically giving very poor people an additional source of income, over and above what they would have to spend on the tax. Anybody above the poverty level would have income tax savings to offset their higher consumption tax payments.
So, I would prefer a consumption tax (even in the form of a carbon/energy tax) to the income tax. Ultimately I’d rather efficiently tax something that’s either negative or neutral (pollution/ carbon emissions/ energy use), than inefficiently tax something that’s a positive (productive employment).
Now, in reality, the government will almost certainly pull a bait and switch… offering a “revenue neutral” carbon tax, offset by income tax reductions, but in time, the income tax rates would inevitably rise back to where they were and the carbon tax wouldn’t go away. So, while I think paying a carbon tax would be better better than paying an income tax, the worst case (and most likely) scenario would be paying both. And ultimately, that’s why I oppose the carbon tax.
Russ R. says:
July 15, 2013 at 2:02 pm
….. Let’s begin with a simple statement: As North Americans, we overconsume. ….
….Getting back to overconsumption, there are only two goods that I know of where the seller of those goods spends their advertising budgets imploring their customers to buy LESS of what they’re selling. Those two goods are electric power and municipal water. There is no surer sign that the “market” prices for these goods is too low, encouraging overconsumption…..
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Sir, I would not call you ignorant. You clearly are not. But you are clearly misguided in what you wrote in the above comment. Face it, you love energy taxes and water taxes. How often would you recommend that I shower or brush my teeth? Should I skip every third day of work? When I’m down to the wire, would you please advise me as to what would make you happy.