Impossible Tax Swaps

GS writes:

On ‘grand bargains’ and regressive cuts…

Doubling the gas tax would bring an additional 20–30 billion in revenue… it would also have a significantly positive environmental impact.

Why not trade a 20–30 billion tax increase for a 20–30 billion tax decrease on, for example, FICA?

That’s easy — status quo bias. This is good policy, but like anything that that swaps FICA for anything it’s bad for retired people. And like anything that begins to dismantle America’s sprawl-driven industrial policy it’s bad for people who drive a more than mean amount and auto firms that sell lots of SUVs and pickup trucks. What’s more, some people would be disquieted about the potential destabilization of dedicated funding streams for Social Security and transportation. In a political system that permits thousands of ways to kill a proposal, the change won’t be made.


In America, it’s very difficult for policy to make modest shifts. Instead, the vast majority of the time nothing happens. Then sometimes you get big shifts. I’ve learned recently that in technical terms the policy change curve has a leptokurtic rather than normal distribution.