The Assumptions Will Get You

This passage in Tom Friedman’s most recent offering in the New York Times caught my attention:

I favor corporate tax cuts — big ones. But I would have offset them with a carbon tax, a tax on sugar and a small financial transaction tax. That way, we’d unleash the energy of our corporations while mitigating climate change, spurring the next great global industry — clean power — curbing childhood asthma and diabetes and not adding to our national debt, thereby making ourselves more resilient as a country.

When Trump simultaneously cuts corporate taxes and withdraws America from the Paris climate accord, tries to revive the coal industry by lowering pollution standards and weakens fuel economy standards for U.S.-made cars and trucks, he is vastly adding to the financial debts and carbon debts that will burden our children.

A little back of the envelope calculation should make you see what I did. Americans consume about 150 lb. of sugar per person per year in all forms. At $.65 per lb. that’s a bit less than $35 billion all told. How large a tax on sugar does Mr. Friedman have in mind? Shorter: he might want to discourage the consumption of sugar but a tax on sugar is unlikely to produce much revenue. Fun fact: we already pay more per pound for sugar than practically any other country in the world.

I’m also skeptical of his notions of the power of carbon taxes. I think he’s assuming linearity, nearly always a bad assumption. Both his sugar tax and his carbon tax are powerfully regressive and, at least in the case of a carbon tax, probably won’t have the effects he envisions.

In both cases you could probably have more effect on the consumption of sugar and the emission of carbon by lowering subsidies than you could by increasing taxes. But reducing subsidies can’t be siphoned off to benefit your cronies.

My own view is that we should abandon taxation as a method of social engineering. It carries too many unforeseen secondary effects along with it. Focus on taxation as a means of realizing revenue and take other measures to change behavior.

6 comments… add one
  • TarsTarkas

    You damn well that the tax cuts on businesses would somehow be delayed as the sugar, carbon, and other universe-saving taxes are imposed. I’ve said the same thing in the past (in different venues): Social engineering by taxation is stupid and wasteful. The only people it benefits are the bureaucrats who sop up their share of the revenue extracting it and distributing it. BTW I am certain you are well aware well the sugar lobby has kept the wheels greased on their subsidy gravy train. I would like to see all government subsidies, including irrigation subsidies in the Imperial and Central Valleys, be eliminated (It’s crazy that water is cheaper in PA than in AZ because of them). It would be a shock to the economy, but I think equilibrium could be achieved fairly quickly if the government acts more like a baseball umpire instead of an NBA or NFL referee.

  • PD Shaw

    High-fructose corn syrup approves of Tom Friedman’s message.

  • Another example of how your assumptions can come back and bite you in the butt.

  • Guarneri

    “But I would have offset them with a carbon tax, a tax on sugar and a small financial transaction tax.”

    This is what makes him unreadable. After he finishes his Rube Goldberg treatment of the tax code maybe he can similarly devise a machine to reinflate the world.

  • steve

    “My own view is that we should abandon taxation as a method of social engineering.”

    Amen. We should decide what we want to spend, then tax enough to pay for it. We will still have a lot of arguments about what kinds o taxes and who pays.

    Steve

  • steve

    “(It’s crazy that water is cheaper in PA than in AZ because of them)”

    Average yearly rainfall in AZ = 8 inches. In PA it is 41 inches.

    Steve

Leave a Comment