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Pigouvian Tax vs. Norquistian Anarchy

Posted on | December 14, 2012 | No Comments

Mike Magee

Like many Americans, I’ve been following the tax debate. We seem to have moved from “no new taxes” to “what new taxes”. The New Yorker this week came out in favor of Pigouvian taxes.(1) Say what?
Back in 1920, a British economist named Arthur Pugou, wrote a book called “The Economics of Welfare”, in which he pointed out that a successful investment by one group of people could impose costs or financial hardship on another group of people.(1,2) Out of this reasoning eventually emerged the concept of levying a tax on products that carry with them an extra cost to society – a Pigouvian tax.

Thus we tax alcohol and cigarettes, not simply to recover the financial damage done, but also to discourage or limit their use. Most recent examples include Mayor Bloomberg’s proposal to tax sugar laden beverages related to their association with exploding levels of childhood obesity, and the carbon tax which seemed destined to disappear into the woodwork.

Enter Hurricane Sandy and the now generalized acceptance of carbon driven global warming as a scientific reality. Fringe politicians aside, expect to see action on this soon. A recent study of 545 nations air quality levels published in the journal Epidemiology found that declining levels of small particulate matter air pollution were linked to higher life expectancy. During the 8 year period of the study, particulate pollution from particles 2.5 micrometers or less, mostly originating from sources that also raise atmospheric carbon levels, benefited life expectancy. Specifically, a decrease of 10 micrograms per cubic meter from 2000 to 2007 resulted in an average increase in life expectancy of .35 years.(3)

The dual benefits of addressing climate change driven catastrophes while improving the health of our lungs may explain why opposition to a carbon tax is melting before our eyes. Within the past month, 100 corporations including Royal Dutch Shell publicly pronounced that there should be a “clear, transparent and unambiguous price on carbon emissions”. Historic opposition voice ExxonMobil in the past weeks has shown some heart for the planetary patient with the statement  that “A well designed carbon tax could play a significant role in addressing the challenge of rising emissions.”(1,4)

As we approach the fiscal cliff, will the Pigouvian carbon tax make the cut for new revenue? The Congressional Research Service says a “relatively modest” tax over the next decade could single-handedly eliminate half of the projected federal deficit. Conservative and liberal think tankers are on it.(1) The American Enterprise Institute and the Brookings Institution hosted a recent seminar the Wall Street Journal titled, “Carbon Tax Idea Gains Wonkish Energy”. Former South Carolina Congressman Bob Inglis commented, “I think the impossible may be moving to the inevitable without ever passing through the probable.(1,5)

Such is the world we live in. Maybe what is “going over the cliff” is not the nation’s economy, but  Norquistian anarchy. That would be good for America and the planetary patient.

For Health Commentary, I’m Mike Magee.

References:
1. Kolbert E. Paying For It. The New Yorker. December 10, 2012.http://www.newyorker.com/talk/comment/2012/12/10/121210taco_talk_kolbert
2. Pigou A. The Economics of Welfare. Fourth Edition. 1932. http://www.econlib.org/library/NPDBooks/Pigou/pgEW.html
3. Harvard School of Public Health. Press Release. December 3, 2012. Declining Air Pollution Levels Continue To Improve Life Expectancy in U.S. http://www.hsph.harvard.edu/news/press-releases/2012-releases/air-pollution-improve-life-expectancy-us.html
4. Drajem M. Exxon warming up to ‘secret’ US carbon tax plan. Bloomberg News. Nov. 16, 2012  http://business.financialpost.com/2012/11/16/exxon-warming-up-to-secret-u-s-carbon-tax-plans/
5. The Economics of Carbon Taxes. American Enterprise Institute and The Brookings Institution. November 13, 2012. http://www.aei.org/events/2012/11/13/understanding-the-economics-of-carbon-taxes/

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