John Whitehead wrote a very interesting article, Are All Tax Increases a Bad Thing? He started by quoting conservative economist Greg Mankiw who had written that he’s in favor of Pigovian taxes. These are taxes designed to correct for economic externalities. So, for example, a tax on lead pollution would deal with the fact that lead is toxic but that this fact is not included in its market price. But Mankiw claims that such tax increases can only be acceptable if they are revenue neutral. So if the lead tax raised a million dollars, other taxes would have to be reduced by a million dollars.
I have a major problem with this. (So does Whitehead, but that isn’t the focus of his article.) Is it the case that we should still have lead in gas, but that gas should be more expensive? Isn’t the remaining gas still spewing lead into the air and stunting the brain development of children? Doesn’t it make sense to use that money to keep children away from lead filled air? Or to encourage development of non-lead alternatives? Why is it that taxes must stay exactly the same other than the fact that Mankiw ultimately believes that taxes can only ever go in one direction: down?
One reason, I think, is that this is all part of a cunning conservative plan. Taxes on consumer products fall most harshly on the poor. The rich don’t use proportionally more gas than the poor. So the poor will end up paying a far higher percentage of their incomes on any new Pigovian taxes. But given that our existing tax system is barely progressive, we can depend upon the offsetting tax cuts going mostly to the rich. Thus: what Mankiw is advocating is for taxes to go down on the rich and up on the poor. What a surprise!
But Mankiw wasn’t happy with just proposing a tax system that does exactly what he is always in favor of. He had to use it to attack liberals. It’s funny that he provides a value judgement that he thinks is some kind of law of physics: increasing taxes must be offset with decreasing taxes. Therefore, the liberals who don’t want to do this are irrational or providing a “stalking horse for a broader, big-government agenda.” But given that the taxes will not be increased on the same people that the taxes will be decreased on, this is not valid. If it is the case that the poor (as usual) are going to get screwed, then a truly fair system would be to give some of the tax savings to them — or design the tax such that it doesn’t shift income from one class to another.
Whitehead brought up another aspect of this. Conservatives might be concerned that liberals just want to increase tax revenues. (But it is ridiculous to say that liberals want big government.) Just the same, liberals are very right to be concerned that conservatives will make this deal, and then later eliminate the tax increase. But is that really what Mankiw has in mind? Well, he’s a very smart guy. And given he’s pushing a system that clearly shifts the tax burden down the economic ladder, I can only assume that he doesn’t mind the idea that the conservatives might be able to get rid of the Pigovian tax, and end up with lower overall taxes that fall more heavily on the poor. That’s pretty much the history of the modern conservative movement.
I know in this article that I am very harsh on Mankiw. The problem is that this is not the first time I’ve written about him. This is the main thing that I associate with him:
This is what we are dealing with. In the economics profession, he has a great reputation. But I don’t care about that. He’s put himself out as a public intellectual. And as such, he talks about politics and uses his economics expertise in a very slippery way. I don’t doubt that he’s self-deluded. I’m sure that he thinks if only we did as he wishes, all would be well. But who cares? He’s still just an apologist for the power elite.