Tax something, get less of it — not always in the way you’d expect

There’s this peculiar thing that some people do when they propose a punitive tax: They insist, loudly and at length, that it will only affect consumption in a particular way.  Witness, for example, the furore that erupted when Bryan Caplan pointed out that increasing the payroll tax on companies that don’t provide health-insurance coverage would lead to fewer people being hired for those jobs.  PPACA’s “pay or play” tax is intended to push (er, ah, “nudge”) employers into providing health insurance as a tax-avoidance measure, but as Caplan mentions it’s just as likely to push employers into not hiring people.

Similarly, off in Australia, the gummint reacted to the latest binge-drinking scare of canned mixed drinks by imposing a steep 70% surtax and insisting that this would lead to less drinking.  Eric Crampton informs us that Aussie binge-drinkers instead buy their whiskey and Coke separately and mix it by hand:

He also notes that the next big thing, volumetric price hikes on boozeahol, is unlikely to have entirely salutary effects:

I’d love to see work on whether there’s substitution into more toxic intoxicants with substantive price hikes. I would be surprised if a substantial increase in the price of the cheapest available alcohol did not induce substitution into solvents or worse among some of the folks the health groups might be trying to help.

You mean to tell me that if a group of people want to get fucked up on the cheap, and you increase the price of one intoxicant, they’ll get fucked up on the cheap on nastier intoxicants rather than turn to abstinence?  Inconceivable!  I’m flabbergasted by the lack of imagination among these tax-first proponents.  Or perhaps rather than “imagination” I should say “literacy”, as the dismal effectiveness of alcohol prohibition is a matter of well-known historical record.

Speaking of tax avoidance and the historical record, Frances Woolley has a good post up about the impact of building-code taxes on architecture:

On the theoretically-progressive British window tax (1695-1851), she writes:

The deadweight loss of the window tax was the reduction in well-being it caused, over and above any loss of income associated with paying the tax – the human costs of living and working in dark rooms with no ventilation. A recent paper by Chantal Stebbings argues that this burden was highest for the urban poor, who typically lived in larger tenement buildings, so did not benefit from the seven window exemption, and were vulnerable to the effects of crowding, poor sanitation and disease. Imagine cooking dinner over a coal fire in an unventilated room, or living with someone with tuberculosis, and being unable to open a window. Even in the dwellings of the wealthy, like Hough End Hall, shown above, the bricked up windows are on the top floor, which was typically the servants’ quarters.

As a more recent example:

Egypt taxes finished buildings at one rate; unfinished buildings at another lower, rate. As a result, developers leave their buildings unfinished, typically with a half-built upper storey […].

The comments are full of other examples.


4 Responses to “Tax something, get less of it — not always in the way you’d expect”

  1. January 5, 2012 at 21:54

    Well, I can’t be sure whether it is whisky or something else to which the Aussies went after the alco-pop tax; I there was rather remembering how we made road sodas when I was a kid in Manitoba. The study just said no reduction in binge drinking.

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