A Tax, by Any Other Name
- Posted by: Cliff Kuang
- on April 29, 2009 at 6:01 pm
Let’s rethink taxes so people feel good about chipping in.
A carbon cap and trade program sounds great in theory. By giving companies allotments for carbon emissions, which they could then trade, you’d create a market for green innovation. Companies would have incentives to slash carbon, since they could sell those savings to heavy polluters as credits. Conversely, heavy polluters would have to pay to keep operating as usual—also giving them an incentive to cut carbon.
But many people think it’s a bad idea. They argue that cap-and-trade is both complex to administer and easy to abuse—Europe’s scheme, for example, has plenty of critics. Better to simply tax carbon emissions, the thinking goes—it’ll be simpler to implement, and create incentives for efficiency.
Too bad it’ll never happen. For politicians, raising taxes is the equivalent of playing Russia Roulette with a fully loaded gun. Cap-and-trade schemes persist exactly for that reason—a carbon tax would never pass in the Senate.
But we can design our way around that problem. As the New York Times Magazine recently reported, behavioral economists have found that simply describing an idea as an “offset” rather than a “tax” makes Republicans much more likely to accept its merits. That study took place in a lab, though. In the real world, filled with Fox News and Rush Limbaugh, a tax by any other name is still a tax. (Cap-and-trade is, you guessed it, being labeled a tax.)
They’ve been able to vilify taxes so easily in part because there’s so little innovation in tax policy design. Using the lessons of behavioral economics, couldn’t one counter them by designing a tax policy that makes people rethink their interactions with the government?
For example, we could put a tax on carbon, and let business choose among several options for how that money will be spent, whether it’s solar power, tidal generators, reforestation, or even returning the money to average citizens. If people know exactly where their money goes, they’re less likely to resent a tax—ahem, offset. That’ll give them an ownership stake in those programs, and provide them with something to market. (A business could boast that “In 2010, we invested $100 billion in new carbon technologies.”)
Behavioral economists are producing an ever-expanding body of research on these elective tax systems and their relative appeal. “When you give people a specific objective, it makes new ideas much more palatable,” explains Dan Ariely, author of the excellent book, Predictably Irrational. (You can buy the new, revised version of the book here.) It’s called the victim effect: People don’t give money to vague causes like starvation. But if that same cause has a face attached to it—such as a particular starving child in a particular village—fund-raising is far more likely to succeed. Carbon “offsets” tied to specific causes that payers can choose would take on a similar dynamic. “Governments tend not to get the taxes right because their design makes the whole dynamic negative,” says Ariely. “But you can make things interesting and bring taxes to the center of civic life.”
We don’t have that today. Taxes are a burden, to be cheated through clever accounting or lambasted by politicians eager for an easy slam-dunk. If we’re going to change that culture, we’ve got to create ways for people to feel invested in the system. That’s going to require a creative approach to tax policy design that respects human psychology.
DISCUSSION: 7 Comments
it’s all about the appeals to emotions.
Those are very important points, and inventive tax policy design is very promising.But I also think that we shouldn’t give up on good, old-fashioned persuasion. I’ll often hear people argue against a carbon tax simply because it seems politically “unrealistic,” but I optimistically believe that good ideas have a way of winning out in the end if people defend them. We should never let Rush and Fox’s sheer volume deter us from taking a principled stand, especially in a time when so many entrenched givens are being questioned, challenged, and reevaluated.
So An offset can be returned to the average citizen? Since the business would be raising their prices for the offset, the average citizen is ultimately paying the tax. So why do it in the first place. Sounds like it is really about political power in the end.
How stupid do you think people are???? You have been brainwashed by some entity if all you people are convinced that tax, fee, offset is a good thing. I just don’t get it. You think that if I am taxed and simply told where it’s going, (and yeah, like it’s really going to go where they say?) that we’ll have smiles on our faces. We would much rather pay this tax than put food on our plates. Has Obama, or any liberal ever taken even a basic economics class?? It wasn’t the same one I took. Must have been the new text books chosen by the goverment. Like the ones where the history facts are changed. I hope Obama is the anti-christ which means the end of this world is near and I won’t have to live around you fruitcakes anymore.
To the last two Anons—You guys are really missing the point. Bottom line: Carbon is a negative externality which threatens to create a classic tragedy of the commons where because no one pays for a resource (such as a world unaffected by calamitous global warming), that resource goes unpriced in the market–and is therefore destroyed at a quickening pace. We have no choice but to find a smart way of regulating carbon. Period. It’s going to come some time. But we have the power to choose whether it will be an effective program or not. It’s not an issue of “food on our plates” or “average citizens ultimately paying for the tax.” We have to do this; the question is where the pain will be spread. The key problem will be getting those who are most responsible to pay their proper share.
I still do no believe that global warming (even if it is true) is caused by carbon emmissions. If you compare the data of graphs of carbon emmissions compared global temperatures in the twentieth century you will barely see any correlation, however if you compare the graphs of solar activity to global temperatures you will see a huge correlation. And the name of global warming is a misnomer when in fact the world has been on an eight-year ‘cooling’ streak. There is even basic biology that combats the idea of global warming, if carbon dioxide gasses are running rampant in our atmosphere than there should be an explosion of plant growth as surplus carbon dioxide sustains a larger plant population. I could go on, but the fact of the matter is that the debate over the global warming issue is still going on (since the 1970’s), before we jump on taxing carbon in an effort to save the world we need proof and not speculation that it is going to work.
Are u guys nuts? Cap and trade still won’t work. These billionaires will shift their companies to the third world who never care about carbon emissions. So who will suffer? It will create higher tax, job loss. People will get all the burdens. Stupid economist.