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Why More Support for Taxes Would Make a Freer Market

By Matthew Yglesias  

"Why More Support for Taxes Would Make a Freer Market"

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Stanford’s Jon Krosnick explains that Americans believe climate change is real, believe it’s caused by human activity, and want to see it stopped—but they diverge from experts in how it should be done:

Fully 86 percent of our respondents said they wanted the federal government to limit the amount of air pollution that businesses emit, and 76 percent favored government limiting business’s emissions of greenhouse gases in particular. Not a majority of 55 or 60 percent — but 76 percent.

Large majorities opposed taxes on electricity (78 percent) and gasoline (72 percent) to reduce consumption. But 84 percent favored the federal government offering tax breaks to encourage utilities to make more electricity from water, wind and solar power. And huge majorities favored government requiring, or offering tax breaks to encourage, each of the following: manufacturing cars that use less gasoline (81 percent); manufacturing appliances that use less electricity (80 percent); and building homes and office buildings that require less energy to heat and cool (80 percent).

A frustrated Kevin Drum glosses this as “the American public doesn’t want to do anything — carbon taxes or cap-and-trade — that might actually work.”

But that’s not quite right. In principle you could seriously reduce overall emissions through these kind of regulatory measures. But it would be much, much, much more economically costly than alternative approaches. Offering giant tax subsidies to manufacturers of fuel efficient automobiles and offsetting the lost revenue with higher income taxes and reduced public services will, over time, cut fuel consumption. But you could cut fuel consumption by an equivalent amount with a modest increase in the gasoline tax, which would produce revenue that could be used to reduce income taxes and increase public services. The difference between the two policies is that on the “free” option everyone loses except automobile manufacturers, whereas on the “expensive” option everyone who consumes a below-average amount of gasoline comes out ahead.

But the public’s understanding of these kind of issues—and not just in an environmental context—is extremely poor. And I think conservative politicians, conservative pundits, and conservative political institutions deserve a great deal of the blame for this situation. The view that it’s better to achieve policy aims through taxes and fees than through piecemeal subsidies and regulations is a standard consequence of the neoclassical economic model that these people are the strongest proponents of. And in general, taxing undesired externalities is by far the most “free market” way to handle these kind of situations. But the American right offers, in practice, no support for these kinds of market-oriented policies. Instead it’s spent thirty years deeply investing in rabid anti-tax politics that have completely conquered the Republican Party and largely conquered the Democratic Party as well. Now it’s nearly unthinkable to suggest that anyone should ever pay more taxes for any reason. And yet demonizing taxes doesn’t eliminate public demand for policy solutions to broad problems, it simply channels it into less efficient channels.

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