Friday, August 12, 2011

Rube Goldberg Taxes Can't Work

Taxes shouldn't be complicated. A good tax is one that is, easy to understand, transparent, non-intrusive, and ideally corrects for some kind of negative externality. Car metering schemes like the proposed one in the Netherlands corrects for several negative externalities at once, but thats the only positive to the plan I can think of.

Driving a car has some serious negative externalities. Among other things, driving pollutes the air, causes traffic congestion, and requires a huge amount of dedicated space and maintenance for roads and parking. Like any externality, there is no individual harm to driving a car, only a social one. Therefore a tax would economically justified in order to correct for the arising market failure. The metering scheme tries to price for all the externalities at once by in essence acting as a gas and congestion tax at once. Noble, but stupid.

In order for a corrective tax to have its desired effect, it must be simple and easy to understand. Tracking behavior and charging based on opaque metrics only serves to make the tax highly unpopular and ineffective. With meters people won't necessarily know what they are getting charged for, so they'll get mad about the charge and they won't change their behavior. If you want to change behavior, you have to make it impossible for them to miss what they are being charged for.

You know whats a totally transparent tax that would get people to change their behavior while charging for car usage, while giving benefits to fuel efficient cars? The gas tax. You know what will encourage people to take alternate routes and avoid driving and parking in urban centers? Higher tolls and parking rates. It's really that simple.

One last reason a metering scheme would suck: it tracks your cars every move.

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