A Republican saying increase taxes??

Wow two posts in just two days.

I was reading some past posts from my favorite blog (by Greg Mankiw) and I came accross this article

http://gregmankiw.blogspot.com/2006/10/pigou-club-manifesto.html

I generally don't have a good taste in my mouth for anything with "manifesto" in the title (Communist manifesto... anyone?) but after reading this article I decided to let go of my bias against manifestos and join the pigou club.

I fully support higher gasoline taxes for the reasons Mankiw listed in this manifesto. The article got me thinking about how our whole tax system should generally be based on consumption taxes. Here are a few reasons I believe this:

1) Consumption taxes imposed on things that aren't good for individuals can be highly beneficial. Generally called "Sin Taxes" taxes on things like cigarettes, alcohol, marijuana (if it were legalized) and I would even add fast food, candy, soda etc. discourage people from consuming things that are generally bad for them and encourage consumption of things that are generally good for them. People who consume the items listed above abundantly generally have worse health and therefore higher health care costs, especially in their later years. This becomes a high cost for the government as health care for the elderly is often paid for partially or entirely by the government. These taxes, therefore, make those responsible for the cost of health care the ones who have to pay for it. This reduces what I believe is a huge inefficiency. In a sort of twisted way a higher gasoline tax would be a type of sin tax in that it discourages you from doing something bad (driving) and encourages you to do something good (walking--at least to the T).

2) Immigration woes. One of the biggest anti-immigration arguments is that illegal immigrants fill our prisons, schools, and hospitals draining our money from our system. This may be a valid argument under the current tax system that we have in place, but if we shifted towards a more consumption based tax system, illegal immigrants who work for wages under the table (and avoid income tax) still pay taxes like the rest of us because they are still consuming. They, like the rest of us, would then be paying into the system which they, like the rest of us, take out of. At the very least it might silence the extreme right wing, gun toting, confederate flag wielding nut jobs from vomiting the same old (get those damn--insert ethnic minority here--out of our country) rhetoric.

3) Increases the incentives for savings. Like briefly mentioned in the manifesto, a more consumption based tax system encourages people to save, and with the savings rate recently near 0% in the US, that seems to be a pretty important thing. When I go to Burger King I have really only two options: Buy the Jr. Whopper for 99 cents or don't and save that 99 cents (I always eat off the dollar menu--due to my extreme frugality). If the whopper jr. were $1.30 I would be less inclined to buy it and more inclined to save the money. Our current tax system (largely based on income, payroll and corporate tax) discourages saving and encourages spending.


The biggest argument against consumption taxes (especially sin taxes) is that they are more regressive than income tax. While this doesn't necessarily have to be the case, it wouldn't necessarily be a bad thing to shift towards a less progressive tax system in the United States. The US currently has the most progressive income tax system of the OECD nations, (http://www.taxfoundation.org/blog/show/24944.html), and recently the top 1% of taxpayers began paying more income tax than the bottom 95% of tax payers combined. (granted income distribution is a key component of this figure--it's still surprising--see link above)

In short-tax negative externalities? Yes! Shift from an income tax system to a consumption tax system? Yes!

-Andrew