17 Mar 2016

Taxes That Help

Most taxes don’t help taxpayers in aggregate. This goes for income tax, capital gains tax and sales tax. But some taxes do, specifically a pollution tax and a congestion tax.

First the pollution tax. All polluters should be charged for the pollution they cause, whether that’s air-pollution in the form of particulates or carbon dioxide, groundwater or river pollution, or other forms of pollution. The government should convene a panel of scientists tasked with making as accurate an estimate of the cost of pollution as they can. And then apply the taxes equal to the estimated cost of pollution. There should be no exemptions [1] whether to individuals or companies or particular sectors, or to particular pollutants like bikes.

The government should monitor the level of pollutants in cities, and cap it at half the level the WHO says is safe. That gives a margin of safety — if it pollution suddenly increases, it will still be safe. Auction the right to pollute.

In addition to pollution tax, we should have congestion tax, most obviously on our roads. We waste billions of dollars to traffic jams, by burning fuel, wasting time, breathing polluted air, etc. Better pay that in the form of a tax [3]. This reduces the number of vehicles on the road, so that everyone benefits. People will carpool or use vans like the Ola Shuttle [2] or buses, depending on demand. As demand increases, the congestion charge will increase, driving people to bigger and bigger vehicles, so that the number of vehicles stays the same, but they carry more people without adding congestion.

Congestion also applies to the power grid. We need smart meters that measure not just how much electricity someone has consumed throughout the month, but also at what times. You’d enter the maximum rate you’re willing to pay into your meter, and it would cut power to your house the instant the rate increases beyond that. That way, people who want power will have it. Higher prices will encourage more judicious use of power, say by turning off appliances when not needed, and by buying more energy-efficient appliances. Finally, this will cause a huge amount of money to flow into the power sector, where it can be reinvested to improve the generation capacity and reliability of the grid. The billions of dollars that are spent on generators and diesel for them are better spent building more power plants.

The government should do away with all other taxes like sales tax and capital gains tax that don’t benefit taxpayers. If everyone pays sales tax, nobody is better off. But if everyone pays congestion tax, everyone is better off for it.

[1] Getting rid of exemptions makes it fairer, and therefore more acceptable to people. People are pissed when they find themselves having to pay tax that others aren’t paying. If you exempt to one group, everyone will demand an exemption, and it becomes an ugly political mess, resulting in poor decisions.

[2] A congestion charge should ideally vary continuously based on time and the area. But people don’t like unpredictable taxes, so you need to balance efficiency with palatability. Maybe instead of a continuously varying charge, you’d have one notified a month in advance, so that people can prepare for it. And maybe there would just be one rate instead of a rate that varies over the course of a day.

[3] Of course, those should be legalised. This calls for an enlightened government, not the incompetent clowns we have today in our government.

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